Spotify to pave the way for Nordic IPOs

Music streaming service Spotify reportedly took additional steps in March to prepare for its upcoming IPO, which could take place as soon as this autumn, if not next year.

The company put up a recruitment ad for a US financial reporting specialist on its website earlier this year, as well as on its LinkedIn profile. It also recently acquired the company behind the algorithms it uses to power its personalised radio service. Adding weight to the speculations, Spotify obtained a $200m credit line from Morgan Stanley, Deutsche Bank and Goldman Sachs earlier this month – and the VC-backed company is also said to have engaged in informal discussions with investment banks.

Spotify is rumoured to be currently holding informal meetings regarding the IPO, and if the company sticks to its timeline, banks could start making formal pitches to lead the IPO within the next two months. Following its latest $250m funding round, led by Technology Crossover Ventures in November, Spotify is now one of the most capitalised start-ups ever, with Creandum and Northzone among its earliest investors.

Spotify may soon be joining ISS as another Nordic company going public

King slayer
When Candy Crush Saga developer King, also founded in Sweden, went public on 26 March it met with decreasing share prices as soon as it started trading on the New York exchange. By the end of the first day, King's share price had dropped by a disastrous 15%, stirring up heavy criticism in the international press. The criticism is mostly centred around the fact that King's revenues all stem from just one source – Candy Crush.

Spotify's subscription business model sets it apart from King, which makes its revenues from advertising, a difference that seems to increase confidence in Spotify's IPO among people with knowledge of the market. The company's secretive revenue figures have generated much guesswork during the years, some of it as a cause for concern as reports of losses have persisted. To be sure, the ample time line and valuation speculations confirm Spotify's listing as one of the most anticipated in the European tech world for some time.

Strong pipeline
Spotify CEO Daniel Ek has played down the possibility of going public in Swedish media, but the recent strong investor sentiment and resilient tech shares have shifted the outlook. Back home on local turf, the Nasdaq OMX Nordic anticipates a strong pipeline with an increasing number of companies to list in 2014, in combination with larger IPOs this year, as markets remain confident thanks to low interest rates and growing risk inclination among investors. "The hot US tech market is catching on here," says EQT partner Caspar Callerström. "Many investment banks are busy with either working on IPOs or pitching right now."

The development is highlighted by EQT-backed ISS's €4bn IPO in mid-March - the largest listing in the Nordic markets in over a decade, and the largest Danish IPO in 20 years. The cleaning and catering group's shares rose 14% in the first day of trading. "ISS was a textbook example of how to do an IPO," says Callerström.

Debt collector Lindorff, co-owned by Altor and Investor, and cable operator Com.hem are both rumoured to list before the summer and EQT's Scandic and UK-based SSP could also become IPO candidates within a year. Says Callerström: "The market's been sceptical of sponsor-led IPOs previously, whereas today each case is judged on its own merits. There's a better ground now, the Sanitec listing has ‘unplugged' the market."

Bathroom ceramics maker Sanitec listed on Nasdaq OMX Stockholm at the end of last year, in an IPO that valued the business at SEK 6.1bn. The oversubscribed IPO attracted interest from Swedish institutional and retail investors - around 3,000 investors were allocated shares. EQT acquired Sanitec from BC Partners in February 2011.

IPO activity had picked up by a modest amount in the Nordic region prior to the Sanitec listing, with five flotations of private equity-backed businesses recorded by unquote" data for the whole of last year, against none in 2012 and four in the previous year – time will tell whether 2014 can top this performance and match the eight IPOs recorded in 2010.

 

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