December 10, 2019 / 11:12 PM / a month ago

Brazil's XP valued at $14.9 billion as it prices Nasdaq listing: sources

SAO PAULO (Reuters) - Brazilian financial services platform XP Inc (XP.O) has priced its Nasdaq listing at $27 per class A share, the largest IPO of a Brazilian company this year, and raised $2.25 billion, sources with knowledge of the matter said on Tuesday.

XP, which has among its shareholders private equity firm General Atlantic LLC, Brazil’s largest private-sector lender Itau Unibanco Holding SA (ITUB4.SA), and founder Guilherme Benchimol, has been valued at $14.9 billion, the sources added, asking for anonymity to disclose the price ahead of the announcement.

The IPO is set to be the fourth largest in the United States in 2019 and is considered a bellwether for other Brazilian financial technology companies eyeing U.S. listings in 2020.

With demand equivalent to 14 times the offering, XP raised its initial $22-$25 price range.

The share offering is likely to boost competition in Brazil’s highly concentrated banking sector, in which the country’s top five banks hold 82% of total assets. The firm will use the proceeds to invest in marketing, hiring and new financial services, such as digital banking.

Founded in 2001 as an independent financial advisor, digital broker XP has been challenging Brazil’s traditional banks. With more than 1.5 million clients, XP has 350 billion reais ($83 billion) under management.

It is the second time XP has pursued an IPO. In 2017, it was about to list its shares when it struck a deal with Itau, which paid 6.3 billion reais in cash and shares to buy a 49.9% stake.

The $14.9 billion valuation is the biggest ever for a Brazilian company in a U.S. IPO. Equivalent to 60 times its 2019 earnings, it commands a much larger multiple than peer digital brokers in the United States.

Charles Schwab Corp (SCHW.N), for instance, has been trading at an average price/earnings ratio of 18 times, according to Refinitiv data.

According to one of the bankers working on the deal, XP presented itself to investors as “peerless.” U.S. online brokers are facing increased competition pressure, with some scrapping brokerage fees.

XP argues it operates in a very different and less competitive environment, with Brazilian banks still charging investors high fees.

While XP is the largest of a new breed of Brazilian digital brokers luring clients from traditional banks, others such as BTG Pactual (BPAC3.SA), Fosun-backed Guide and Easynvest are also taking on the traditional lenders on a smaller scale.

Investment banking units of Goldman Sachs & Co, JPMorgan Chase, Morgan Stanley, XP Investments, Itau, Bank of America, Citigroup, Credit Suisse and UBS Group AG managed the offering.

XP’s IPO is coming during a tough environment for new listings in the United States, with a string of high-profile companies such as Uber Technologies Inc (UBER.N), Lyft Inc (LYFT.O) and exercise bike maker Peloton Interactive Inc (PTON.O) suffering rocky public market debuts.

In recent weeks, an increasing number of companies, including online mattress retailer Casper and cybersecurity firm McAfee, have put IPO plans on ice because of investor pushback against their valuations.

An advantage for XP is that the company is going public when it is already profitable, a characteristic not shared by many of the IPOs that have struggled in 2019.

Reporting by Carolina Mandl and Tatiana Bautzer; Additional reporting by Joshua Franklin in New York; Editing by Lisa Shumaker and Rosalba O'Brien

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