- Lead Underwriters Jefferies & Co, Others Forced to Buy Millions of $ in MANU Shares on Friday Using $14 "Stabilizing Bid" To Avoid Embarrassing 1st-Day Closing Below IPO Price; PrivCo IPO Data Shows Use of Stabilizing Bids' Empirically Signal Signal Material Price Plunge Due to Initial IPO Significant Overpricing
- Manchester IPO's over-pricing by some 280% had no reasonable economic basis, as company's and banker's counting on a "retail investor put" in light of the team's large fan base to place a floor under stock's price failed to materialize, as "Facebook Effect" causes consumers to grow wary after suffering repeated losses on retail-investor targeted IPOs with unrealistic valuations, PrivCo's research concludes
- PrivCo Study of Sports-Teams' Historical Post-IPO Performance Data Released Today Concludes Sports Teams' Have Consistently Made Poor IPO Investments
Disclosure: As per company policy, PrivCo and all PrivCo analysts never hold any position in any company's stock.
August 11, 2012 1:30 am EST - PrivCo analysis released today calculates that Manchester United's (NYSE:MANU) valuation using several accurate valuation methodologies is a mere $4.97/share, only about 1/3 of its $14/share offering price (which is also the price at which it closed its 1st trading day, but only because IPO underwriters placed large open-market bids at $14/share to prevent the stock from closing below the IPO price). The objective, independent valuation indicates that MANU stock could plunge by nearly 2/3rds of its IPO price before it reaches fair value. Furthermore, PrivCo data shows the implications of other recent IPOs where IPO underwriters were forced to make "stabilizing bids" on 1st days' trading correlated with rapid plunge in stock prices as soon as the ephemeral artificial floor propping up price in initial days is removed, and how this augurs poorly for Manchester United's public shareholders.
Below PrivCo Provides A Step By Step Guide To Manchester United's Valuation:
Step 1: PrivCo identified a sample of 5 closely comparable publicly traded sports teams (comps) and 4 recent comparable M&A transactions:
A. List of Comparable Companies:
- A.S. Roma S.p.A. (BIT:ASR)
- AFC Ajax (ENXTAM:AJAX)
- Borussia Dortmund GmbH & Co. KGaA (XTRA:BVB)
- Juventus Football Club SpA (BIT:JUVE)
- Sport Lisboa E Benfica (ENXTLS:SLBEN)
- S.S. Lazio S.p.A. (BIT:SSL)
B. List of Comparable M&A Transactions:
- Guggemheim Partners (et. all) acquire LA Dodgers
- Jimmy Haslam III acquires Cleveland Browns
- Fenway Sports Group acquires Liverpool FC
- Castle Creek Partners Acquires Boston Celtics
Step 2: PrivCo then derived the average valuation multiples at which the comparable companies currently trade (for public companies), or the revenue multiple at which they were acquired for in the relevant M&A transactions. Note that all multiples for publicly traded comparables are based on their LTM (Last Twelve Month) relevant metric:
Step 3: PrivCo applied the average multiples above from Method 1, Method 2, and Method 3 to the most recent fiscal year financials of Manchester United (Fiscal Year Ended June 30, 2012).
A. Manchester United Enterprise Valuation Applying Average EV/Rev multiple of Public Comps (from Method 1)
B. Manchester United Enterprise Valuation Applying Average EV/EBITDA multiple of Public Comps (from Method 2)
C. Manchester United Enterprise Valuation Applying EV/Rev multiple of M&A transactions (from Method 3)
Step 4: Taking into consideration each methodology's Enterprise Valuation, PrivCo took the average of each assumption's
(Method 1, Method 2, Method 3) Enterprise Valuation and calculated the average.
Step 5: The final step of PrivCo's Valuation is to properly derive, as required, the equity market value of Manchester United. Using the average Enterprise Value (definition provided below) from Step 4, in order to accurately derive the equity value, one must make necessary balance sheet adjustments.
PrivCo data concludes that the fair market valuation of Manchester United would generate a share price of $4.97, or in other words, Manchester United was overvalued by 281%. At $4.97 per share, Manchester United would have an Enterprise valuation of $1.41 Billion, and an equity value of $841.8 Million.
Further independent data points confirming above:
Jefferies & Underwriters Forced to Stabilize Bid:
- What is a Stabilizing Bid: Stabilization specifically allows for underwriters to help make a market in an IPO stock's initial debut in order to support the price of the IPO. The purpose of a stabilization bid must be to prevent a decline in the market price.
- As witnessed above, the usage of stabilization bids on behalf of underwriters in Zynga's and Facebook's IPO perfectly correlates with a mis-priced and over-valued offering, which, after the stabilization floor is removed, continues in a downward trend until the market can support its valuation.
- Friday's market had little interest in supporting Manchester United's $14 / share price, as Manchester United's opening performance showed that retail investors were uninterested in a mis-priced and overvalued company, clearly cognizant of the other recently overvalued IPOs such as Zynga and Facebook.
- It is important to point out the significance of this relatively rare stabilization occurrence, and how it has important signs of how the stock will perform in the near future.
- If the stabilization bids used to support the overvalued IPOs of Zynga and Facebook are any indication of what will happen with Manchester United, Monday might prove to be a very rough day. PrivCo CEO and Founder Sam Hamadeh stated, "The magnitude of the overvaluation of ManU's IPO - and therefore the potential for a disastrous collapse in the company's stock - is reminiscent of IPOs from Zynga and Groupon."
Sports Teams Don't Score Goals As Investments:
According to PrivCo Calculations, based on a sample of five of Europe's most successful publicly traded sports teams, PrivCo data confirms that on average, publicly traded professional sports teams under-perform the Dow Jones by 13.9%. Some teams, suchs as Olympique Lyonnais Group SA (EPA:OLG), have underperformed the Dow Jones on average by 33.9%. At best, Borussia Dortmund has shown that it is able to outperform the Dow Jones, but only by .7%, a modest number by any means.