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Inside the IPO: Fix Price CFO advises companies to start work early

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Fix Price, the Russian discount retailer, became a public company at the beginning of March in a $1.9bn IPO on the London Stock Exchange. Its CFO Anton Makhnev sat down with GlobalCapital to discuss the deal.

GlobalCapital: Can you tell me a little about how Fix Price became a public company?

Makhnev, Fix Price: When the company was created over 13 years ago, it was created with a vision: at some point it would become a public company. I wasn't with the company at the time, I joined four years ago and since then we have actively been communicating, talking to investors and telling them the story, which ultimately resulted in very strong feedback when we launched the IPO.

Investors had good recollections from their earlier meetings with me. There was one sovereign wealth fund, which we had been in a constant dialogue for the last four years, and ultimately that fund came into the book and is now at the top of our institutional shareholder register. Investors really appreciate that long-term education.

Fix Price is not a typical IPO candidate in this market which has tended to be dominated by technology companies. Was that a challenge for you?

You are right, we are a different animal. We all got used to tech companies being so popular attracting different pockets of demand, which are not seen in any other transactions. In Russia, there was Headhunter and Ozon. In Poland there was Allegro and we saw Kaspi out of Kazakhstan. All of these transactions were either pure tech companies, or they have a very strong tech background.

What is peculiar about us is that the share of our online business is 0%. You could call us a traditional retailer, but we are not a traditional food retailer like emerging market investors are used to seeing in the Russian equity capital markets. Therefore, it was clear to me from the very beginning, well, ahead of the time when we started the official IPO process, that it would be critically important to approach the broader investor base. We had to go outside of the emerging market investors, beyond the usual suspects, to those investors who know and understand our particular sector.  Value retail, which is where we operate, is a different subject, and in order to appreciate it, you need to have knowledge, experience and have benefited from investments in these type of dollar retailers. Therefore, that is what we did.

Covid has also changed the way IPOs are done. The traditional roadshow was two weeks of pre-marketing, followed by two weeks of roadshow, but now you have one and a half weeks, which is clearly not enough for traditional price discovery. Therefore, you have to have your discussions with investors, in order to gauge their interest and appetite, long before you publicly announce your transaction.

That is what we did and we have been having these discussions and building relationships with investors over the last three and a half years. From last November to, I would say, mid-February, when we did our first [intention to float] announcement, we were in a constant dialogue with investors.

In January, we had two detailed, deep dive sessions with, about 30 accounts. Some of those accounts received a draft prospectus having signed a non-disclosure agreement. After that we had some subsequent follow up discussions with investors on the back of the prospectus and we were able to crystallise the front runners of the process who gave us certainty on pricing and indicated their interest, which later crystallised in four high quality cornerstone investors.

Before this year, cornerstone investing was very rare in EMEA ECM. Why did you decide to use cornerstones?

We had all had a balanced view about whether to have, or not have, cornerstone investors. Before joining Fix Price, I spent six and a half years at Morgan Stanley in London, working in equity capital markets. I know the pros and cons of having cornerstone investors.

We decided to do the cornerstone tranche, because it is something that ultimately gives certain execution certainty. At the same time, it rewards the investors with certainty of allocation, which from our perspective was a win-win scenario. Markets are volatile, particularly in a Covid world. A short marketing process was beneficial for us.

How was the marketing process? Obviously, everything is virtual now. Was that more intense than you imagined?

It clearly has its pros and cons. On the one hand, you're right, it's more intense because instead of six meetings a day you have nine or 10.

On the other hand, it allows you to do a deal in a far shorter timeline, because you can compress to have more meetings in a matter of, let's say, three or four days.

Another good thing is that you don't have to travel and fly between different time zones, which puts significant pressure on how tired you are. You can start your day with meetings with investors in Asia, southeast Asia, the Middle East, or, say in Russia.  As the day progresses, you move to investors who are based in London and in continental Europe, and then you finish the day with meetings with investors in the US.

Can you talk me through the week of the IPO? How did it feel and how did the company prepare for it?

I'm glad you asked this, because obviously it was interesting for me given my experience at Morgan Stanley. One thing I learned particularly then is that deal windows are short. 

You have be the first one out the gates and you have to prepare to compress your timetable just to get out in the window, because volatility is high. The company started over 13 years ago with the ultimate goal to be a public company. While the IPO process took roughly six months, we were planning to be a public company all that the time.

For example, in order to get out in this window we significantly compressed, our internal financial reporting. In 2019, two years ago, we had auditors signing our full year accounts for 2018 in Mid-April. This year we managed to sign our full year 2020 results in early February.

In a matter of just two years, we were able to compress our internal reporting schedule by almost three and a half times, a remarkable achievement for the whole of Fix Price.

That is just one example of what we have done to prepare and how we've been running the IPO preparation process from the very beginning.

We set a quite aspirational, and quite optimistic, IPO timetable and as we were moving along with that we were able to compress it even further, which was very helpful in the end because markets are volatile.

The week we priced different things were happening in the broader capital markets and on the night [itself] there was a load of news flow, which was not overly positive.

There will always be things that you cannot control and you have to be ready whether it's sunny or it's raining.

If it's raining, you have to have an umbrella, as simple as that. There will always be things that we cannot control as a company, but what we have to do is to focus on the things we can control and prioritise them in order to maximise our results to grow the company and create value for the shareholders. That is what we did in the IPO.

Finally, what advice would you give a CFO considering an IPO?

I would say, because IPO windows are shorter, timing is key. It is very important to run a very well organised process, and make sure that you tick all the boxes, because ultimately, it is on you as the CFO and not on the banks assisting you.

The banks have done a tremendous job assisting the company, and I have a lot of respect for them and am very grateful for all the work that they put in. But it’s your deal. You have to make sure that you know what's going on at all times and ultimately it is you as the CFO who is responsible for the outcome of the transaction.

 

 

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