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A 'courageous' IPO

By Sam Kerr
21 May 2020

In the classic UK sitcom Yes, Minister, cunning civil servant Sir Humphrey Appleby would try to deter government minister Jim Hacker from making a particular decision by calling it "courageous" — meaning it was risky. He might have given similar advice to bankers on the IPO of coffee company JDE Peet’s this week.

The deal stands to be one of the superstars of the year: a €2bn transaction that was already being talked about in December as 2020’s most anticipated, and largest, IPO.

There is a good rationale behind launching the deal now, too. Equity markets have enjoyed a steady rally from the bottom of the market in March and JDE Peet’s has been one of the few companies to benefit from Covid-19 lockdowns, as coffee drinkers turn to home brewing instead.

There is also a window to sell now before corporations start revealing dreadful second quarter earnings and while the risk of a second wave of Covid-19 infections, and therefore lockdowns, is still only a possibility.

However, the IPO market can be fickle, even in the good times.

Tumbling equity markets can be fatal to IPO book building and even the good deals are postponed. Even after pricing, poor liquidity in a bad market means new stocks can keep falling.

A poor showing from JDE Peet’s could make an already difficult 2020 impossible for other IPO candidates.

The coffee seller could be the perfect blend for this market but with no Covid-19 vaccine and a major recession looming, launching any IPO at all is certainly brave if nothing else.

By Sam Kerr
21 May 2020