First Billion-Dollar Deal of 2020
Last week, the 2020 IPO market saw its first billion-dollar IPO from popular home consumer brand Reynolds Consumer Products Inc. (NASDAQ: REYN). You're probably familiar with the company — it's known for its Reynolds aluminum foil and Hefty trash bags. The IPO was the largest public offering by a company in its industry.
Reynolds went public on Friday, January 31 on the Nasdaq under the ticker symbol “REYN.” It set its IPO price at $26 per share, which was in the middle of its expected range of $25 to $28. On Friday morning, it opened trading 5.8% above that IPO price, pushing the company’s valuation close to $5.6 billion. Shares jumped by up to 9.8%, closing the day at $28.55.
Kathleen Smith, principal at Renaissance Capital, had this to say about Reynolds' public offering:
It’s a household brand, it has strong cash flow and it’s planning to pay a dividend, and that will be attractive for investors. It’s a strong consumer name, which is another good thing in a jittery market.
This is the type of IPO that was needed to wake up the market. Historically, January is a quiet month thanks to the market being closed for much of the U.S. holiday season and people getting back into their routines. So an IPO at the very end of January to kick things off again was necessary.
Reynolds Consumer Products is based in Lake Forest, Illinois. It was formed back in 2010 via a consolidation of Reynolds and Hefty with Presto brands. It primarily sells cooking products, waste and storage products, and tableware.
Reynolds products are extremely popular, especially in the U.S. where about 95% of U.S. households use them. According to the company’s filings, Hefty trash bags and its related wares consisted of about 39% of Reynolds' sales in 2018, while 64% of the U.S. market bought its cookware goods like its well-known aluminum foil — a staple in many kitchens in the U.S.
For the nine months ending September 30, 2019, the company reported a net income of $135 million on revenue of $2.1 billion. The company’s prospectus said:
We have an attractive financial profile with steady, organic revenue growth, robust margins and disciplined capital expenditures. These attributes allow us to generate significant free cash flow. In the year ended December 31, 2018, we generated $3.1 billion in revenue, $176 million in net income and $647 million in Adjusted EBITDA.
Reynolds is profitable.
The company has been a household name for decades, and a lot of families are loyal to the Reynolds brand — a big reason why the company will continue to grow and maintain robust margins.
Reynolds CEO Lance Mitchel said in an interview:
What’s attractive to investors about our company is steady proven growth over a long period of time. We have a very consistent, durable demand and investment thesis that’s compelling.
As of close on Monday, February 3, Reynolds shares were at $29.61 — up 13.8%. This was just the IPO to spark the market, and there are some other companies aiming to go public in the first few weeks of February.
This week will see an IPO from the direct-to-consumer mattress-in-a-box company Casper Sleep. It’s expected to go public on Thursday, February 6 on the NYSE under the ticker symbol “CSPR.” The company and its lead underwriters have an IPO price target of $17–$19.
Initially, Casper set its expectations very high but then decided to scale back and be a little more realistic. I can’t stress enough that, when it comes to the IPO Market in 2020, investors don’t want hyped-up IPOs; they want realistic companies with strong growth and financials.
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Casper is expected to raise $159.6 million at the top end of the range. If all goes well, that would put the company’s valuation around $741 million — significantly lower than the $1.1 billion that Casper projected in its last private funding round.
In reference to Casper Sleep’s changes to its expected valuation, Smith said:
That’s good news. At least it’s in the ballpark of what market participants think the value should be. It suggests companies are adapting to the reaction of IPO investors to money-losing, highly-valued companies.
This was an excellent move. Investors want to see a company with strong, growing profits. They are no longer interested in overlooking losses if the company has strong, fast, expected growth.
Casper is going to need to show that to potential investors in addition to its ability to compete in a very competitive market with other companies that are profitable.
It released its financials for the nine months that ended on September 30, 2019. It reported $312.3 million, which was up 20% from the previous year. Unfortunately, for that same period, there was a net loss of $67.3 million — up from the previous year. That is definitely something to think about: Can Casper expand without increasing its net loss?
The company has said that it will use a good portion of the net proceeds from its IPO to fund its growth. It plans on expanding into more areas in what it calls the “sleep economy.”
It plans on focusing on other products like pillows, bedding, lights, furniture, sound and scent devices, sleep-tracking devices, medical devices, bedside clocks, supplements, digital apps, mediation, and counseling — all of which seem a little ambitious.
Keep an eye out on Casper’s IPO this week. Whatever happens, the IPO market is heating up! Brace yourself. 2020 is set to be a year the IPO market won’t forget.
Until next time, Monica Savaglia Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
Until next time,
Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
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