IPOs: Updater puts US float plan on hold as tech valuations take a hit

As tech firm valuation fall across the world, an American company backed by a swag of Australian billionaires encapsulates the issues facing the sector as it now bides its time for an IPO.

Updater CEO David Greenberg says the company’s IPO timing “wasn’t ideal” and will bide its time to list. Picture: Supplied

As valuations of tech firms the world over fall, from the biggest Nasdaq firms to “unicorn” start-up darlings, an American company backed by a swag of Australian billionaires encapsulates the issues the sector is facing.

Updater provides online services that help Americans move house, with their app and other systems helping movers change address for utilities, cable bills and other items that can be forgotten in the flurry of the shift.

It is making record revenue and has big expansion plans, and needs to hire more software engineers and other employees.

But it has been forced to put its float plans on ice, frustrating some shareholders who had stuck with the firm hoping for a big US payday.

Updater, which delisted from the ASX in 2018 in an effort to gain a $1bn-plus valuation in the US, its main market, this week announced a $US215m ($309m) debt financing deal with tech-focused private equity firm Vista Equity Partners.

Yet the move comes after plunging valuations for listed tech companies, from Facebook to Block and Atlassian and many more, that have put a stop to Updater’s long-heralded IPO on a US exchange.

And they are not the only start-up coming to terms with a sudden change in investor sentiment.

The Wall Street Journal this week reported that venture capital funds raised $US132bn to invest in start-ups in 2021, nearly double the amount from 2019 and six times the total raised a decade ago, when the number of funds was about a third of what they are today.

In the December 2021 quarter, venture capital investments reached a record $US95bn, according to PitchBook DatA.

The WSJ said investors now believe that was too much money to deploy effectively and valuation multiples deemed acceptable for start-ups even reached as high as 100 times annual recurring revenue, 10 times the historical norm for tech start-ups.

Big public companies are losing value quickly. The Nasdaq index is down 28 per cent since January 1 and Australian software darling Atlassian has lost half its market capitalisation in the same period.

It all means that valuations for private start-ups, which invariably aspire to public floats in order to fulfil investor expectations and mandates, are suffering – whether they have solid business plans and performances or not.

Updater has had some big name backers in recent years, including members of the Lowy family, Navitas founder Rod Jones and rural newspaper business partners Antony Catalano and billionaire Alex Waislitz.

A recent shareholder update reveals Updater had been approached by several special purpose acquisition companies (SPACs) during 2020 and 2021 to go public, before it undertook preparations for a more traditional IPO by June this year.

Updater said it had been with three of the largest US investment banks to plan for the IPO and had also built a syndicate of eight banks to work as bookrunners and managers for the float.

The IPO was estimated to value Updater at between $US1.5bn to $US2bn depending on investor demand, well above the $1.1bn mark achieved in December 2019 and the $680m market cap when its delisting was announced to the ASX in August 2018

But the IPO market in the US has completely dried up for tech firms in the last four months, meaning Updater’s IPO is on the backburner.

“Uncertainties related to the global economic market and inflation have led to market volatility, and valuations of public growth tech companies have been substantially reduced,” the Updater shareholder update says.

In an interview with The Weekend Australian, Updater chief executive David Greenberg admitted the company’s IPO timing “wasn’t ideal obviously” but added “the good news is we have done a lot of that initial work for a potential public listing.

“So we think we’re in a good spot if it makes sense for the company, and the market is in a good window that we’ll be able to press forward at some point. Obviously, I’ve no idea when that will be. It could be in six months or a year, or two years.”

Updater has instead turned to the debt market, with Greenberg saying the Vista deal “cleans up” the company’s capital structure to have just shareholders and the Vista debt, which also comes with warrants in Updater when an IPO eventually takes place.

Headed by US billionaire Robert Smith, Vista has more than $US80bn assets under management.

While Greenberg said he was happy with the terms of the debt funding, he admitted Updater’s Australian shareholders were getting impatient after backing his move to take it off the ASX almost four years ago.

“There’s definitely some shareholders that are rightfully anxious for some liquidity opportunities since this has been a few years since we delisted (but) that is not the primary goal of ours.

“Our goal is to create shareholder value, grow the company, achieve our company’s goals, and raise the capital needed to achieve the goals. A secondary goal would be to provide adequate liquidity for them. But again, a lot of the market conditions are out of our control. We can only potentially IPO when the company is ready.”

Meanwhile, Updater is achieving record results. Its shareholder update revealed it made $141m in revenue in the year to December 31, a 46 per cent increase over the previous year.

Updater generated record quarterly revenue of $40.1m in the three months to March 31, a 71 per cent increase over the same quarter in 2021.

Greenberg is confident Updater’s growth trajectory will continue. It is integrating more of its software with big real estate firms across the US and has other major deals in the pipeline. It should not be a start-up shooting star, given it is not reliant on a tech fad. People are still going to move house, and Greenberg claims his company was not just a sensation in Covid times as people moved away from big cities.

But he is aware that some shareholders will be watching closely for that IPO market to open again, or some other deal takes place for them to get some money off the table.

“The most important thing is our shareholders understand that the company has performed very well and is in a really good place. And you know, since our D listing a lot has happened.

“The company has grown substantially and we’ve emerged as the industry leader in moving tech in the US. So I think our shareholders are primarily very happy with the success of the company. And I think they’re optimistic that there will be a very favourable liquidity event in the future.

“But of course, the time horizon has been longer than some would have wanted.”