Discussion

This week we are looking at the cost of capital and raising capital for corporations.

In the US News article from December 28, 2023, a quick review of the 2023 IPO market is presented, along with thoughts for 2024. High inflation and market “earnings recession” negatively impacted the market for IPOs in 2023, but 2024 may see a return to more “normal” activity levels. A second article from Bloomberg highlights 2023 as a year of high investor losses in SPACs, or “blank check companies”. These are special purpose acquisition companies or SPACS. There are a number of YouTube videos out there that will help explain SPACs, but I found this really short (<4 minute) video that gives a good overview

The third article for this week is from Reuters.com, which discusses the recent corporate bond issues and their outlook for early 2024.

In the lecture notes I focus on capital either from a firm going public for the first time (IPO) or selling more additional stock (secondary offering) or through debt offerings (selling bonds or taking out large loans). In the case of start-up firms, capital sources also include bank loans and from venture capital firms. VCs, or private equity firms are a major source of financing for non-public firms.

For this discussion, I’d like you to research a firm of your choice that has recently (last 2 years) raised major capital from public sources. This can be an IPO, SPAC, venture capital funding, or major issuance of new debt.

What firm did you choose and what industry is it in? Is that a risky industry?

Why/when did the firm begin its operations?

What type of funding did the firm raise and why did it choose that particular source? Yes, you may need to speculate here. Whatever you come up with, be sure to have some sort of support for your opinion.

ost by Jesse Funderburk
20 hours ago
Graded Discussion 3, M5
For this discussion, I chose the automotive industry and Rivian Automotive Inc.
When it comes to the automotive industry, there is no surprise that some of the original
automakers, like Ford and Chevrolet, are worried losing market share. As the market for
the electric vehicles heats up, the sales for combustible engines vehicles have declined.
Rivian has taken the market by surprise and is gaining market share from the likes of
Ford and Chevrolet. The automotive industry is extremely risky whether you drive a gaspowered engine or and electric vehicle.
How new is Rivian? For those who are just now seeing these vehicles on the road
for the first time might be surprised to hear that Rivian has been around since 2009.
Rivian was created by CEO RJ Scaringe but was founded as Mainstream Motors. “As
Scaringe grew older, he found himself driving miles into nature to hike, and became
aware that he was contributing to the pollution of an environment he looked to
preserve. As a result, the company was born” (301 ‘Rivian’ stories, 2024).
As they say, “if you can’t beat them, join them.” In this case, Ford Motor
Company did just that. “Rivian Automotive, Inc. (NASDAQ: RIVN) has received funding
from several well-known business, including Ford Motor Company (NYSE: F) and
Amazon.com, Inc. (NASDAQ: AMZN), and has won accolades for its creative approach to
EV development” (Immad, 2023). “Ford had invested $1.2 billion in Rivian” (Olinga,
2023).
Rivian offered an Initial Public Offering (IPO) in 2021 when they wanted to go
public, and companies like For Motor Company and Amazin Inc. jumped right on board.
At that time, they raised nearly $12 billion.
In their most recent round of funding in October of 2023, the company was
seeking more money to support the upcoming development and launch of the R2.
“Rivian Automotive plans to raise $1.3 billion in cash via a sale of convertible notes,
joining a growing list of EV makers scrambling to hoard cash as demand falters”
(Rosevear, 2023). These funds are needed to support the R2 series vehicles set to launch
in 2026.
Leading up to Rivian’s latest round of funding in October of 2023, you can see
the shares of stock we low. Weeks leading up to October, the shares were trading at
$21-23 at the closing bell each day. The days following the funding, the daily trade value
of the stock amount dropped and hasn’t been able to recover. As of February 2024, the
stocks are selling for $14-15 at closing. This is roughly 66% lower than the day they
received funding in October, and it is the same values they were trading at in February
of 2023.
References
Immad, L. (2023) 25 Largest VC Backed Companies In The US in 2023. 25 Largest VC
Backed Companies In The US in 2023 (yahoo.com)
Olinga, L. (2023) Ford Gets Rid of Rivian. Ford Gets Rid of Rivian – TheStreet
301’Rivian’ stories (2024), Rivian: The history and future of an up-and-coming EV
automaker. Rivian: History, Features, Pricing, Specs, more | Electrek
Rosevear, J. (2023) Rivian shares fall as EV maker looks to raise $1.3 billion amid growing
demand concerns. Rivian to raise $1.3 billion amid EV demand concerns (cnbc.com)
Reply
Post by Amber Hunter
9 hours ago
Birkenstock’s Woeful Initial Public Offering
This week I chose to discuss the company Birkenstock, who creates comfortable
sandals and other footwear with a custom molded cork footbed and an upper
portion made from leather or suede. The footwear industry can be considered risky
due to a number of factors. Changes in consumer preferences are a major input in
the risk level of a retail business. Birkenstock has founded itself on one specific type
of shoe, which is marketed to a specific type of individual: one looking for comfort
above all else. Riskiness in the footwear industry can also be affected by the supply
chain. Birkenstock’s rely on 2 main pieces of materials for their shoes, cork and
leather. Disruption to the supply of either of these materials would severely limit
their production capabilities.
Johann Adam Birkenstock began crafting this quality, comfortable footwear back in
1774, in the church archives of Langen-Bergheim, Germany (“History and Heritage”,
n.d.). They made their debut in the United States in 1966. In 2023, Birkenstock
decided to go public in the United States, rather than their home base of
Germany. The most likely reason for this decision is probably based upon the New
York Stock Exchange being one of the better established stock exchanges in the
world, providing access to a large pool of investors. The initial funding for the IPO
was provided by private equity owner backed by French billionaire Bernard Arnault
to the amount of $1.48 billion (Saini et al., 2023).
Unfortunately for Birkenstock and its investors, the IPO performance on opening day
ranked as the sixth worst of all the IPOs that have raised over 1 billion (Fisher,
2023). There are a multitude of speculations as to why Birkenstock performed so
poorly. They may have overvalued their stock, especially in comparison to other
publicly traded footwear companies. Additionally, the public may not have
prioritized expensive footwear during a time when inflation costs and interest rates
are nearing record highs. “Birkenstock CEO, Oliver Reichert, did not have any prior
experience leading a publicly traded company, potentially damaging the confidence
of investors who may have been interested in buying its stock” (Fisher, 2023).
The first post-IPO report shared that though there were poor results following
market debut, the stock ended the year 19% higher than kick-off. Birkenstock
executives stated that they planned to raise prices this year after their
underestimation of inflation costs in 2023 (Rajesh & Reid, 2024). With Birkenstock’s
world-wide sales network, their energy remains high and predictions for their stock
to improve may be seen over the summer months when a majority of their purchases
occur.
References
Fisher, C. (2023, November 30). What went wrong with the birkenstock IPO. Michigan
Journal of Economics. https://sites.lsa.umich.edu/mje/2023/11/30/what-wentwrong-with-the-birkenstock-ipo/
History and heritage: Birkenstock Premium Quality Sandals Shoes. History and Heritage |
BIRKENSTOCK premium quality sandals shoes. (n.d.).
https://www.birkenstock.com/us/us-about-history.html
Rajesh, A., & Reid, H. (2024, January 18). Birkenstock falls as investors focus on profit
warning in first … https://www.reuters.com/business/retail-consumer/birkenstockbeats-fourth-quarter-revenue-expectations-2024-01-18
Saini, M., Nishant, N., & Oguh, C. (2023, October 11). Birkenstock stumbles in
underwhelming US market debut | Reuters.
https://www.reuters.com/markets/deals/birkenstock-set-new-york-listing-after-15bln-ipo-2023-10-11/