Groupon mulls raising IPO price

NEW YORK/SAN FRANCISCO Fri Oct 28, 2011 9:27pm EDT

Groupon founder and CEO Andrew Mason attends the second day of the Allen and Company Sun Valley Conference in Sun Valley, Idaho on July 7, 2011. REUTERS/Anthony Bolante

Groupon founder and CEO Andrew Mason attends the second day of the Allen and Company Sun Valley Conference in Sun Valley, Idaho on July 7, 2011.

Credit: Reuters/Anthony Bolante

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NEW YORK/SAN FRANCISCO (Reuters) - Groupon Inc is considering raising its IPO price range, as underwriters grow more confident about demand after completing the East Coast leg of a two-week roadshow to woo investors.

One of the most closely watched initial public offerings of the year, Groupon had previously filed with regulators to sell 30 million shares at $16 to $18 apiece, scaling back its aspirations amid weak market conditions and uncertainties over its long-term business outlook.

The company is now considering raising the price range and could file an amended IPO prospectus early next week, said a source familiar with the situation. Groupon declined to comment and no other details were immediately available.

Chief Executive Andrew Mason hosted a luncheon on Friday at the St. Regis hotel in Manhattan -- the biggest event on the roadshow, seen as crucial in helping Groupon's bankers decide how to price the shares.

Fund managers who attended the meeting told Reuters they were pleasantly surprised by how charming and composed Mason was, since he has a reputation of being volatile after he blasted Groupon's critics in a leaked staff memo this summer.

Nonetheless, quite a few investors said they were still undecided about buying into the IPO, noting that Groupon faces huge competition in the daily deals business. The company has also had to change its accounting twice under regulatory pressure and has lost two chief operating officers in the past year.

Mason "was a lot more likable, less arrogant in person than I expected," said a money manager at a firm with more than $15 billion under management, who attended the Friday meeting.

"It's intriguing. It's such a massive opportunity if they're the winner, so the question is, 'Do they become the winner?'" he said, speaking on condition of anonymity.

Despite lingering concerns, investors expect the IPO to be over-subscribed, partly because bankers have limited the float to just 4.7 percent of shares.

One investor who attended the event said the investor's hedge fund firm planned to ask for shares in the offer, but added that it was very unlikely to get an allocation.

The risk is that Groupon may be flipped by some investors on the first day. Later on, early-stage investors might want to cash out through secondary issues, putting downward pressure on the stock.

"It will probably be like LinkedIn, a huge moonshot," said a hedge fund manager with $500 million under management, who attended Friday's presentation.

"There hasn't been an IPO in a long time and everyone will clamor for it," he said, but added that he does not view Groupon as a long-term investment.

Fidelity Investments, Capital Group and T Rowe Price already own Groupon stock from private investment rounds and are planning on buying more shares in the IPO, according to two underwriting sources.

The three asset managers all declined to comment so it was not certain if they would follow through. Institutional investors typically do not show their hand until a day or two before the final pricing and stock market debut.

AHEAD OF AMAZON

Groupon scaled back its IPO to raise up to $540 million, from a previous target of up to $750 million, amid Wall Street concerns that the Chicago-based company faced well-funded rivals such as Google Inc and Amazon.com Inc. They have billions of dollars to put in play, while Groupon expects to have about $723 million in cash and equivalents after the IPO.

A private equity investor who attended the presentation on Friday said he thinks Groupon is big enough that it is here to stay, but he was still not sure how much the company is worth.

"People are questioning Groupon's business model but I think that's misplaced," said the investor, whose firm has more than $10 billion under management. "I don't know if it's worth $11 billion or $5 billion or $20 billion -- that's where the debate comes in -- but it's a real business."

Groupon, which is approaching three years old, stressed to potential investors on Friday that its financials compared favorably to those of Amazon in its early days.

Mason said Groupon is currently generating about $190 in gross billings per customer per year on average, compared with Amazon's $130 when it was at a comparable stage of development, according to a person who attended the presentation. Amazon now generates about $290 in gross billings per customer per year, Mason was quoted as saying.

"Given the past mistakes management has made, they sounded credible," Scott Sweet of research firm IPO Boutique said.

The one-hour presentation took place at a room atop the St. Regis, a luxury hotel off Fifth Avenue that sports red carpet stairways leading up from the sidewalk and staff in fancy overcoats and top hats.

Security was tight and investors who were not pre-registered and who tried to walk in were turned away. Those investors who made it inside were offered chicken salad, bread, chocolate chip cookies, and tea or coffee.

There were half a dozen questions after the presentation, of which two focused on one slide that showed Groupon spending roughly $14 to acquire each customer and generating a return on that investment, according to one investor.

Another question focused on Groupon's efforts to reduce marketing spending and how that will effect subscriber growth.

Executives and bankers are scheduled to meet with investors in San Francisco, Denver and Chicago next week.

Underwriters on the Groupon IPO are being lead by Morgan Stanley, Goldman Sachs & Co and Credit Suisse. The shares are expected to begin trading on the Nasdaq on November 4 under the ticker symbol "GRPN."

(Reporting by Clare Baldwin in New York and Alistair Barr in San Francisco; Additional reporting by Anthony Hughes in New York; Editing by Tiffany Wu, Gary Hill)

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Comments (2)
frixyradd wrote:
i really appreciate your blog. thanks for sharing! keep blogging!

Oct 28, 2011 9:53pm EDT  --  Report as abuse
FBreughel1 wrote:
Of course the IPO order book is over-subscribed. Investment bankers are all – and across the board – betting on the fact that they can sell this overvalued equity as the moment the stock market bell rings. Throughput is their business, and as soon as Groupon is over they use the same cash to take another IPO again at another quick gain of 10-30 %. Afterwards which they have a tuna sandwich and collect bonuses.

But let’s get serious: It’s an internet company which MIGHT make a net annual return let’s say 50-300 million dollar. Probably not, but let’s play the game. Then how MANY years this has go proceed succesfully before the 5 billion is re-earned ? Crap – over twenty years which really is an infinite age in internet time.
It is a charming little company though, worth let’s say 3 -4 years of cash flow before the market competition catches up, copies the business model, and economic rents completely evaporate: $ 500 million max and not a penny more. But of course, if you just think it is just cool to own Groupon shares all the numbers above mean very little.

Oct 29, 2011 6:54am EDT  --  Report as abuse
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