Strong start of the year for M&A, margin calls, and closing the global gender gap has increased by a generation
Welcome to Nº 18 of In The Money, your weekly newsletter on keeping up with all things finance, tech, and startups. As always, this week’s newsletter is filled with all the financy things. Closing the gender gap has increased by a generation, a major setback in progress by the pandemic. This week tech giants released their plans for Clubhouse clones, propelling a race to win the social audio space. SPACs have spurred the strongest start of the year in deal-making, but what are the most important things to keep in mind when considering investing in a blank check company? Deliveroo plunged in its London IPO, while companies listing on the other side of the Atlantic in the US popped. Cryptocurrencies are again a step closer to mainstream use in everyday commerce. This and much more - I hope you enjoy this week’s edition.
Closing the global gender gap will take more than 135 years 🤯
According to the World Economic Forum’s Global Gender Gap Report 2021, another generation of women will have to wait for gender parity. The pandemic has fundamentally impacted gender equality in both the workplace and the home, rolling back years of progress. As the impact of the pandemic continues to be felt, closing the global gender gap has increased by a generation from 99.5 years to 135.6 years. No country has yet achieved full gender parity. In this year’s Global Gender Gap ranking, Iceland tops as the most gender-equal country in the world for the 12th time, having closed the gender gap by 89.2%. Iceland is followed by Nordic countries, Finland and Norway.
Also did an analysis of the pandemic’s impact on gender gaps in economic participation. Early projections suggest 5% of all employed women lost their job compared with 3.9% of employed men. Only 58% of the gender gap in Economic Participation and Opportunity has been closed so far – it will take 267.6 years to close. On one hand, the proportion of women among skilled professionals continues to increase. But on the other hand, there is a persistent lack of women in leadership positions. Only 27% of all managers are women (a number that does not yet fully reflect the impact of the pandemic). You can read the full Global Gender Gap report here.
Margin Calls 📞
On Friday last week, something happened in the markets that got investors worried. There was severe selling pressure in selected US media stocks and Chinese internet ADRs (see last week’s ITM for ADR definition). For example, ViacomCBS and Discovery closed down more than 27% on Friday. For the week, Baidu was down more than 18%, Tencent more than 33%, and Vipshop more than 31%. The sell-off was due to the forced liquidation of positions held by the multibillion-dollar family office, Archegos Capital Management. Archegos Capital was founded by the former Tiger Management equity analyst, Bill Hwang, who won Wall Street’s business despite having pleaded guilty to insider trading years ago. The Archegos strategy included using swaps, contracts that gave financial exposure to companies’ shares while hiding both Hwang’s identity and how big his positions really were. It also became apparent that several Wall Street banks lent Archegos money without knowing that others were doing the same thing for the same trades. Trouble for Hwang, and his banks, arose when the prices of those stocks started to fall. That prompted some of his lenders to demand cash to cover his bets (see definition of a margin call below). When they began to question his ability to do so, some of them, including Goldman Sachs and Morgan Stanley, seized some of his holdings and kicked off the sale of $20 billion worth in huge block trades. That forced selling led to even bigger drops in the prices of those stocks, starting a vicious circle.
On Monday Credit Suisse and Nomura Holdings warned that they faced huge losses from the multibillion-dollar fire sale of stocks. While rival US-based firms Goldman Sachs and Morgan Stanley had already unloaded their positions. Goldman managed to sell most of the stock (it sold $10.5 billion in shares) related to its Archegos margin calls on Friday, helping the firm avoid any losses in the episode. So did Morgan Stanley which sold $15 billion in shares over a few days, avoiding significant losses. Nomura and Credit Suisse also have smaller trading operations in the US, which may have limited their ability to quickly offload large blocks of stock after it became clear what was happening. Regarding the shares of the banks themselves, investors punished the two non-US banks. Nomura and Credit Suisse were down 14%, and 11.5% respectively when the market closed on Monday. Meanwhile, Morgan Stanley dropped 2.6% and Goldman's shares dropped a modest 0.5%.
Definition
Margin Calls occurs when the value of an investor's margin account falls below the broker's required amount. An investor's margin account contains securities bought with borrowed money. Typically, it is a combination of the investor's own money and money borrowed from the investor's broker. The margin call refers specifically to a broker's demand that the investor deposit additional money or securities into the account so that it is brought up to the minimum value, known as the maintenance margin. A margin call is usually an indicator that one or more of the securities held in the margin account has decreased in value. When a margin call occurs, the investor must choose to either deposit more money in the account or sell some of the assets held in their account.
Deliveroo did not deliver… 📦
In last week’s ITM we learned that the highly anticipated Deliveroo IPO was going to be the biggest the City of London had seen in a decade. On Wednesday the shares of a British food delivery firm plunged in its stock market debut. Shares in Deliveroo plunged by as much as 30%, slicing more than 2 billion pounds off the company’s valuation. The company can reportedly still cancel the IPO and void any trades made until unconditional trading starts on April 7. This came as the company faces pressure from investors and trade unions over workers’ rights. The investment firms cited concerns about the gig economy in which Deliveroo operates. Some of Deliveroo’s riders are going on strike next Wednesday once the IPO opens up to retail traders, to protest what they see as poor working conditions and low pay.
… while Coursera popped 🍾
While on the other side of the Atlantic, shares of education tech (usually called simply Edtech) company Coursera closed up 36% after its public market debut on Wednesday on the New York Stock Exchange. Shares closed at $45, giving the company a market cap of $5.9 billion. Before its IPO, Coursera was last valued in the private market at $3.6 billion. Coursera was founded in 2012 by former Stanford University computer science professors Daphne Koller and Andrew Ng. The Mountain View, a California-based company offers individuals access to online courses and degrees from top universities, a business that has boomed throughout the pandemic. Revenue in 2020 jumped 59% to $293 million. Still, Coursera’s net losses widened to $66.8 million from $46.7 million in 2019. Total registered users grew 65% year over year in 2020.
Apple’s secret 🍏
Apple is rumored to have a secret team of hundreds of employees working on virtual and augmented reality (AR) projects. The rumor is about at least two AR projects that include an augmented reality headset set to be released in around 2022 followed by a pair of augmented reality glasses coming later. The headset is rumored to be similar to Facebook's Oculus Quest virtual reality (VR) headset, but with a design that uses fabrics and lightweight materials to ensure the headset is comfortable. The headset is said to feature two high-resolution 8K displays and eye-detecting cameras.
This week Apple also announced it is adding two new voices to Siri’s English offerings, and eliminating the default female voice in the latest beta version of iOS. This means that every person setting up Siri will choose a voice for themselves. Over the past few years, bias in voice interfaces has been heavily discussed.
In other AR news 👾
Snapchat’s Spectacles 4 will make the jump from smartglasses to AR (augmented reality) glasses, with a display system and spatial tracking capable of overlaying Snapchat filters in the real world. To date, Snap has shipped three smartglasses products, branded Spectacles. The models so far don’t have any form of a display system. Instead, they function solely as a wearable camera, exporting captured clips to the Snapchat app.
Google announced on Tuesday several new features that are coming to the Google Maps app. The coolest one will help you find your way through indoor spaces like airports, malls, and train stations using AR. The updated Live View AR feature, which overlays digital guides on top of the real world to provide directions as you look through your phone’s display, now works indoors.
Uber appears to be working on an AR walking directions feature designed to help Uber users find the right vehicle and driver. Mentions of AR function were discovered in the Uber iOS app code by MacRumors.
On Wednesday the US Army said that Microsoft has won a contract to build custom HoloLens augmented reality headsets. The contract for over 120,000 headsets could be worth up to $21.88 billion over 10 years. Microsoft shares were up 1.7% to $235.77 per share at the end of Wednesday’s trading session.
Strong start for M&A 🤝
The start of this year has been the strongest in global dealmaking activity in four decades. This has been fuelled by a flurry of US acquisitions and SPACs, even as the global economy reels from the impact of pandemic lockdowns and restrictions. In the three months to March 30, deals worth $1.3 trillion was agreed which is more than any first quarter since at least 1980. This tops even the heady levels of the dot-com boom at the turn of the millennium. And speaking of SPACs, we’ll cover a couple of announcements from this week as well as examine some things to keep in mind when thinking about investing in a SPAC.
SPACazoo 🚗
Cazoo, the UK used-car sales portal, will be the next company to pursue more growth by way of a SPAC. On Monday the company announced that it will make its stock-market debut on the New York Stock Exchange after agreeing to a merger deal with Dan Och’s Ajax I’s blank cheque company, a special purpose acquisition vehicle founded by hedge fund supremo Dan Och in partnership with Glenn Fuhrman and others. The deal values Cazoo at $7 billion and will also include an extra $1.6 billion in new financing ($805 million in cash from Ajax I and an $800 million PIPE led by the AJAX sponsors and Cazoo backer). The deal nearly triples Cazoo’s $2 billion valuation at its last funding round, a $310 million fundraise in October 2020. The company plans to use the proceeds to continue expansion in the United Kingdom and Europe. The business buys, repairs, sells cars to drivers. Since its launch in December 2019, Cazoo has sold around 20,000 cars, with around 6,000 customers leasing vehicles on a subscription.
The deal is a clear marker of how popular SPACs have become as an option for privately-held companies to take the next step short of a more classic IPO on their own. The traditional IPO is for many smaller companies a lengthy process that might not fit their financials or time constraints. It’s also a sign of how companies based outside of the US are taking the SPAC route to list in on the US public markets, which in the case of Cazoo will give it access to a wider group of investors than listing in the UK would have.
SPACulation 🤭
Let’s talk a little bit about things to keep in mind regarding SPACs. If you want to understand the basics of a SPAC, we covered them in a previous edition of ITM. Despite all of the hype, investors need to tread very carefully about investing in a SPAC and if to stay invested. Therefore, it is important that, initially, if you are considering investing in a SPAC to first perform independent financial and reputational due diligence of both the investor team and the strategy of the SPAC itself. The SEC and you as an individual investor are unable to do the normal detailed company review through an S-1 filing as in a traditional IPO. This is because in a SPAC no operating company has even been identified at that point. As a result, investors would have no idea what they are buying.
Another point is that in general the ones benefiting the most from a SPAC are those running it. Unlike traditional IPOs, the Sponsor gets a 20% stake, called a Promote, and there’s little regulatory scrutiny. And this Sponsor usually invests almost nothing in exchange for this 20% stake. As a result, the Sponsor could walk away with millions even if the SPAC performs horribly, while normal investors will lose everything. Part of SPACs allure has also been driven by celebrity names, many of whom have little to no investing experience. SPACs on average have shown very poor shareholder returns. Those that complete mergers are even worse with average mean and median returns of negative 9.6% and negative 29.1%, respectively. In fact, most SPACs that went public in recent weeks are now trading below their offering price. A further point with the recent rapid rise in the number of SPACs is the fact that there is a lot of capital competing for deals right now, so sponsors may feel the need to overpay in order to get the deal. And for a SPAC a bad deal is better than no deal. A SPAC has two years to find an acquisition target. While the SPAC universe is likely to continue to grow, I would recommend being cautious and I want to stress that due diligence is extraordinarily important in this space.
From cars to aviation SPACs ✈️
Another SPAC news from Europe this week came from the German aviation start-up Lilium which announced it has agreed to go public through a merger with Qell Acquisition Corp., a SPAC founded by former General Motors executive Barry Engle. Lillium is the latest SPAC deal for the urban air mobility industry following announced agreements including Archer Aviation and Joby Aviation. The transaction, announced Tuesday, implies a pro-forma enterprise value of $2.4 billion and a pro-forma equity value of $3.3 billion for the combined company.
Simplified:
Equity Value = Share Price x Shares Outstanding
Enterprise Value = Equity Value + Debt + Preferred Stock + Non-Controlling Interest – Cash and Cash Equivalents
If these kinds of formulas and their usage is of interest, I’m happy to elaborate on them in future issues of ITM. Please let me know.
The deal is expected to close in the second quarter, and the combined company will trade on the Nasdaq under the ticker LILM. Daniel Wiegand, CEO, and co-founder of Lilium, said the funding should provide the company with enough capital to reach its targeted commercial launch in the US and Europe beginning in 2024.
In yet another SPAC that was announced on Thursday, Satellite-to-smartphone broadband company AST & Science announced it expects to close its SPAC merger next week. Its stock will trade on the Nasdaq, after having last year announced plans to merge with special purpose acquisition company New Providence, which trades under ticker NPA. The combined company of AST & Science and New Providence will be known as AST Space Mobile and will trade under the ticker ASTS. New Providence’s stock dropped more than 4% in midday trading from its previous close. If you read the above section “SPACulation” you know what I’m thinking of this.
ITM has covered NFTs quite a lot, but SNL does a great (and extremely funny) job at explaining what the hell an NFT is
Visa accepts crypto… 💳
One of the latest signs of growing acceptance of digital currencies by the mainstream financial industry came on Monday, as Visa announced it will allow the use of the cryptocurrency USD Coin to settle transactions on its payment network. Visa told Reuters it had launched a pilot program with payment and crypto platform Crypto. com. It plans to offer the option to more partners later this year. On the news, Bitcoin, the most popular crypto coin, jumped to a one-week high, rising as much as 4.5% to $58,300. Earlier this month, Bitcoin hit a record high above $61,000. The USD Coin (USDC) is a stable coin cryptocurrency, its value is pegged to the US dollar. Last week Tesla, CEO Elon Musk, said that customers can buy its electric vehicles with Bitcoin.
… as does PayPal 💸
Following the news from Visa, on Tuesday, PayPal started allowing US consumers to use their cryptocurrency holdings to pay at millions of its online merchants globally, being the latest move that could significantly boost the use of digital assets in everyday commerce. Customers who hold Bitcoin, Ether, Bitcoin Cash, and Litecoin in PayPal digital wallets will now be able to convert their holdings into fiat currencies (a fiat currency is a government-issued currency, such as the US dollar) to make purchases. “This is the first time you can seamlessly use cryptocurrencies in the same way as a credit card or a debit card inside your PayPal wallet,” President and CEO Dan Schulman told Reuters.
Spotify takes on Clubhouse… 🔉
On Tuesday Spotify announced that it will acquire Betty Labs, the company behind the Locker Room, which focuses on live audio. The deal marks Spotify's first move into social audio. The company said last month during its Stream On event that it was looking at ways to make its podcast more interactive between creators and listeners. Shares of Spotify traded up slightly on the news. Locker Room is a live social audio app where fans can talk about sports, but Spotify said in a statement that it will evolve and expand Locker Room into an enhanced live audio experience for a wider range of creators and fans. In an announcement on Wednesday, Spotify said it is significantly expanding its selection of personalized playlists with the addition of three new categories of playlists under the heading of “Spotify Mixes”. The three categories being artist mix, genre mix, and decade mix.
The pandemic has ushered in a new wave of audio startups, most notably Clubhouse. Other tech giants are also testing their versions of Clubhouse with social audio features (please see the next two sections below).
…. Slack also gets into social audio…
Stewart Butterfield, the CEO of Slack said his company would soon add a range of audio features for all users of the work chat app. Butterfield said that the feature for leaving audio messages, similar to a function available in messaging apps like Telegram, was available in a beta test. He added that Slack would soon offer a feature similar to Clubhouse, which allows users to drop into rooms for conversations without requiring scheduling a meeting or initiating a call. He made these remarks in a Clubhouse room hosted by investor and former journalist Josh Constine. In addition, Butterfield said Slack would soon get a "stories" feature, a similar format originated by Snapchat and imitated by many, from Instagram to LinkedIn. These new features come as Slack is making a push to turn its business for internal company communications into a broader company-to-company messaging service. Slack was acquired by Salesforce in December last year.
… And LinkedIn 🤔
And the list of Clubhouse’s competitors keeps growing. LinkedIn confirmed it’s also testing a social audio feature in its app. A feature that the company says will allow creators on its network to connect with their community. Unlike other Clubhouse rivals built by Facebook and Twitter, LinkedIn believes its audio networking feature will be differentiated because it will be connected with users’ professional identity, not just a social profile. LinkedIn today already has features like Stories, LinkedIn Live video broadcasting, newsletters, and more.
LinkedIn is only the latest player in the competitive footing of expanding its own Clubhouse rival, with other efforts by Facebook, Twitter, Telegram, or Discord — all of which have their own audio-based networking features in various stages of development at this time.
Smartphone giant becomes EV maker 📱
The Chinese smartphone giant Xiaomi has announced this week its plans to launch an electric vehicle business and invest $10 billion in it over the next 10 years. For this, the company will set up a wholly-owned subsidiary. With this move, Xiaomi, which is the world’s third-largest smartphone maker, is jumping into an incredibly competitive space in China. Not only is it competing with established automakers in the country, such a Geely and Warren Buffet-backed BYD, but also upstarts such as Nio and Xpeng Motors. Both Nio and Xpeng are US-listed and this week the two electric car start-ups beat market expectations in their March deliveries, both companies setting quarterly records. Internet companies are also entering the smart electric vehicle arena. Chinese search giant Baidu launched a standalone electric car company in January. The moves come as electric cars have taken off in China thanks to strong policy support from Beijing. According to some forecasts, 1.9 million electric vehicles will be sold in China in 2021, representing year-on-year growth of 51%.
Xiaomi announced new moves in its core business. On Tuesday it launched its first foldable phone as it looks to push further into the premium end of the smartphone market and challenge the likes of Samsung.
Volkswagen’s April’s fool gone wrong 🙈
On Monday, Volkswagen accidentally posted a press release on its website a month early announcing a new name for its US operations, Voltswagen of America, emphasizing the German automaker’s electric vehicle efforts. However, German automaker Volkswagen will not be changing the name of its U.S. operations to Voltswagen of America after all. The leaked news was actually part of an elaborate April Fools’ Day joke, the company confirmed in a statement later.
Volvo wants to boost the number of female managers 🔝
Volvo released two big pieces of news this week. First, the carmaker will offer full parental leave across the company to fathers, with 24 paid weeks for parents regardless of gender. A move Volvo hopes will eventually help raise the number of senior female managers and bolster its reputation among potential car buyers. Volvo currently offers six months of paid leave to new mothers but follows local country regulations for fathers. In its new policy, effective from April, employees who have been with the company for a year, including factory workers, will be able to take the full period on 80% pay. Over the past two years, the company ran a trial among European sales staff and found equal take-up from men and women.
The second news was that it has reached an agreement with the autonomous vehicle startup Aurora Innovation to jointly develop autonomous semi-trucks for North America. The Aurora Driver technology stack, the self-driving software, computer, and sensor suite will be integrated into Volvo trucks.
This week in the markets 🎢
The week started off with investor fears that that issues from the downfall of Archegos (mentioned above) could spread throughout the banking sector. Monday ended with the Dow rising 0.3%, the S&P 500 losing 0.09% and the Nasdaq Composite dropping 0.6%. US stocks, especially technology shares came under pressure again when the benchmark US 10-year yields hit 1.7760%, the highest since January 2020. In currencies, the US dollar rose to its highest in a year against the yen, boosted by the spike in Treasury yields. On Tuesday the Dow fell 0.3%, breaking its three-session winning streak and slipping from its previous record high. The S&P 500 and Nasdaq also dropped slightly as tech stocks continue under pressure after the 10-year Treasury yield hit its 14-month high.
On Wednesday, the S&P 500 hit a new intraday high, after President Joe Biden’s unveiled a $2.25 trillion plan to rebuild the US economy.US stock futures were beginning April higher after the S&P 500 closed March as its best month since November with a gain of 4.2%. While, the Dow, which closed at a record Monday, saw its second decline in a row. But the 30-stock average, like the S&P 500, had its best month since November, posting a March gain of 6.6%. For the quarter, the Dow and the S&P 500 rose 7.8% and 5.8%, respectively, their fourth positive quarter in a row. The Nasdaq broke its two-session losing streak, with a 1.5% gain Wednesday. Nasdaq has recently been the relative underperformer as technology stocks are especially sensitive to rising interest rates because they depend on borrowing money cheaply to invest in future growth (you can read more about the relationship in a previous edition of ITM). For March, Nasdaq gained just 0.4% and 2.8% for the quarter.
Building on its intraday high from the day before, the S&P 500 passed the 4,000 level for the first time on Thursday as Wall Street built on a solid March following the rollout of President Joe Biden’s economic plan and propelled by technology and energy shares. The S&P closed the day up 1.2% at a fresh record close of 4,019.87. The Dow was up 0.5%. The tech-heavy Nasdaq rose 1.8% as Alphabet and Netflix jumped more than 3%, and Amazon and Microsoft gained over 2%.
Woman of the Week
Julie Sweet
Julie Sweet is the CEO of Accenture. She also serves on the company’s board of directors.
Sweet grew up in Tustin, California. She holds a Bachelor of Arts degree from Claremont McKenna College and a Juris Doctor from Columbia Law School. Prior to starting at Accenture, she was an attorney at the law firm Cravath, Swaine & Moore. She worked at the firm for 17 years and was a partner for ten. Sweet was the ninth woman ever to make partner at the firm. At Cravath, Swaine & Moore she worked on financing, mergers and acquisitions, and general corporate counsel.
"A culture of equality helps everyone. It is not a zero-sum game."
In 2010, Accenture recruited Sweet as general counsel. In 2015, she became CEO of Accenture's North America business. Since early in her career at Accenture, she served on the company's global management committee. Alongside then-CEO Pierre Nanterme, Sweet developed Accenture's mergers and acquisitions (M&A) strategy. In September 2019, Accenture named Sweet its CEO. She became the first woman to hold that position. At the time she was one of 27 women leading companies in the S&P 500 and the 15th female CEO of all Fortune Global 500 companies. Throughout her career, Sweet has advocated for diversity, inclusion, and workplace gender parity. As of 2019, Sweet supports Accenture's goal to have a staff equally represented by men and women by 2025. At the time 42% of Accenture's staff was female. Sweet was named a top CEO for diversity by the website Comparably in 2019. In addition to her work at Accenture, Sweet serves on the World Economic Forum Board of Trustees. Sweet also serves on the board for Catalyst, a non-profit working to accelerate women into leadership.
In 2020, Sweet was named No. 1 on Fortune’s Most Powerful Women in Business list and ranks as No. 14 on Forbes the world’s most powerful women list 2020.
Thank you so much for reading this week’s newsletter. I would love to hear your feedback and please share this with a few friends you think would find this interesting. Have a lovely weekend and Happy Easter to everyone who is celebrating 🐣💜
I’m Marianne, an early-stage VC based in Stockholm. You can reach me by replying to this email, or find me on Twitter or LinkedIn.