Just Eat delivers first high-growth listing

After a long hibernation, the initial public offering (IPO) market sprang back to life in 2014 with a slew of flotations, large and small. One of the most high profile was Just Eat, the online takeaway service, which was the first stock to IPO on the new high-growth segment, launched last year by the London Stock Exchange. Use of the new market made Just Eat stand out, and so did its £1.47bn ($2.47bn) valuation, equivalent to 100 times its underlying earnings.

Founded by five Danish entrepreneurs in 2001, the company has grown exponentially in the intervening years. In the past three years alone, revenues tripled to almost £100m while earnings before interest, taxes, depreciation, and amortisation surged from £99,000 to £14m. More than 36,000 restaurants have signed up to the Just Eat technology platform and the group processed about 40 million orders in 2013, mainly in the UK but also in 12 other countries including Belgium, Canada, Spain, Denmark and even India.

Such growth needs cash. Three rounds of fundraising from venture capital (VC) and private equity saw Just Eat through to 2012, but at that time, the company began thinking seriously about an IPO and recruited former banker Frank McGlade to explore this option.

“Having done lots of IPOs at Deutsche Bank, I joined Just Eat to manage the process. We wanted to float when the company was on a good growth trajectory and when market conditions were right. Our VC backers were keen to stay in the company but we also wanted to provide them with an exit route further down the line,” says Mr McGlade.

London calling

By the second half of 2013, the timing began to look right and the group began to think about where to list. “The main possibilities were New York or London," says Mr McGlade. "People tend to associate New York with technology stocks but we were based in London, most of our business came from the UK and we felt like a UK business. Also, one of the reasons behind our IPO was to raise brand awareness so it made sense to float where our business operates."

The company also liked the look of the high-growth segment, designed specifically for companies that are growing fast and may need a more flexible approach to listing.

“One of the issues around a premium listing in London is that you need to be able to guarantee a 25% free float. Our backers only wanted to sell minority stakes so we were not sure how much of a free float we would end up with. The high-growth segment mandates a 10% free float and that seemed appealing,” says Mr McGlade. “But even though the new market was launched in March 2013, no one had used it yet, so it was a bit of a learning exercise all round."

Having decided on London, Just Eat began looking at bankers. “We spoke to all the IPO players in London and, by October, we had whittled the numbers down to six. We held a formal bake-off and ended up choosing Goldman Sachs and JPMorgan – they seemed to have the best understanding of our business, the best distribution, the best research and we liked the people,” says Mr McGlade.

Strong appetite

Once the bookrunners were chosen, the process began in earnest. In November and December of 2013, Just Eat met about 20 institutions in London, Scotland and New York for ‘early look’ meetings, where the group gave a flavour of the business and its ambitions. Three months later, in March, there was a second round of meetings at which point investors were told that, although nothing was certain, an IPO might well be on the cards.

“Having the two rounds of meetings was very helpful because it allowed us to show a bit of a track record and it meant that institutions knew us by the time we formally launched the IPO,” Mr McGlade explains.

The intention to float announcement was made on March 17, and on March 26, the roadshow began with institutions given pricing guidance of between £2.10 and £2.60 a share. Some observers questioned why Just Eat did not include a retail element in the IPO, but Mr McGlade said the company wanted maximum flexibility, which would not have been possible with a retail component to the offer.

“We ended up accelerating the offer and cutting the roadshow from 10 days to six because demand was so strong. We could only do that under an institutional structure,” says Mr McGlade.

The company aimed to raise £100m of new money with a further £260m of stock coming from existing shareholders reducing their holdings. The book was covered within two hours and by the end of the first day of the roadshow, the book was covered at the top end of the price range.

Conditional dealings began on April 3, and in the first couple of weeks, the shares first shot above the offer price, then fell below it and ended up settling round it, amid ongoing controversy about the valuation. From Just Eat’s perspective, however, the IPO was a great success.

“We achieved everything we hoped to achieve. It went really well. Some people have focused on the short-term share price performance but what really matters is that investors were enthusiastic about the IPO and we are now focused on the long-term outlook for the business,” says Mr McGlade.