Beyond Meat, Inc., the plant-based meat company which serves up hugely popular vegetarian burgers, has been on a tear since its IPO just three months ago, with the stock rising eightfold. Despite Beyond Meat’s success, it has been criticized by some for an eye-watering 40 times forward sales multiple, among the highest of any recent IPO.
Monday, it approached the top of another list: the shortest number of days between IPO and the first secondary share offering. Assuming the shares price Wednesday, the time gap will be a mere 91 days. That is the eighth fastest of any U.S. IPO since 2010, according to Dealogic. It’s also one of the largest deals on that list, with roughly $650 million in proceeds assuming a share price of $200.
How did Beyond Meat move so quickly? As in almost every IPO, there is a lockup on additional shares sold for 180 days, meaning the market wasn’t expecting a flood of new shares from the company or existing stockholders for some time.
But Monday, the lockup was waived for a specific number of shares. A little-known fact is that underwriting investment banks have the discretion to grant a waiver. In the case of Beyond Meat, Sentieo was quick to point out Monday that Goldman Sachs and J.P. Morgan had waived the lockup.
What may surprise some is that regulators don’t generally have a say in the decision. In fact, it may only take one underwriter to give the green light.
As IPO Edge outlined in this recent article, there has been an increasing rush to sell secondary shares early in the last couple of years. One big driver appears to be private-equity and venture capital investors who are keen to cash in. Once they sell, they return the proceeds to investors in their funds and can begin the process of raising money for new vehicles.
One recent example of a super-speedy secondary offering was from Floor & Decor Holdings, which made a $429 million offering of shares sold exclusively by existing stockholders, including Ares Management, Freeman Spogli Management, along with some management and directors. The company itself didn’t sell any shares in that deal.
In other cases, companies themselves are keen to raise cash. Take PagSeguro Digital, a payments company that’s akin to the Square of Brazil, which is growing rapidly and in need of capital. It waited just 149 days – short of its 180-day lockup – to conduct a secondary offering. That $1.1 billion share sale consisted of a hefty amount of new shares from the company itself along with some from pre-IPO stockholders.
Beyond Meat appears to be a blend of both. The bulk of the offering, or 3 million shares, will come from existing shareholders such as venture capital giant Kleiner, Perkins, Caufield & Byers LLC along with insiders including CEO Ethan Brown.
But the company itself is also selling 250,000 shares. Given Beyond Meat’s rapid pace of growth, there’s probably good reason to raise capital for expansion. The company has shown a sharp improvement in margins, suggesting it’s putting money to work well.
How should investors feel about the sharp drop in Beyond Meat shares Tuesday? Arguably, the response is short sighted. PagSeguro shares responded similarly, only to gradually rally to much higher levels in the months ahead.
But with Beyond Meat trading at such a rich multiple, and the likelihood of strong competitors entering the fray, this may be a good time for a reality check.