Brazilian IPOs get into a New York state of mind
When it comes to Brazilian initial public offerings (IPOs), geography sometimes still matters even in a globalized world.
For example, Brazilian credit card services company PagSeguro Digital Ltd, which commanded a $6.8 billion valuation when it went public on the New York Stock Exchange (NYSE) in January, surpassed its bankers’ wildest expectations.
The forecast-beating flotation was mostly due to parent company Universo Online SA’s (UOL) decision to skip the local Sao Paulo exchange run by B3 SA Brasil Bolsa Balcão in favor of a market where companies in the fintech space fetch a better premium, people close to the deal say.
The decision underscores how Latin American bourses – long dominated by traditional companies like banks, consumer goods makers, telecoms and commodities plays – are struggling to lure tech start-ups.
If that trend continues, it could exclude exchanges like B3 from one of the Brazilian economy’s growth sectors.
B3 denies there is any wider trend of companies migrating to other markets. Of the 28 share offerings by Brazilian companies last year, only two were purely abroad and three were dual listings.
But Tiago Isaac, responsible for relations with issuers at B3, acknowledged that tech companies, which are a rarity in Brazil, are the exception.
“High growth tech companies only find a large pool of investors in the U. S.”, he said.
PagSeguro’s underwriters wanted it to be compared with U. S. fintech companies such as PayPal Holdings Inc and Square Inc and not with slower growth local peers such as payment processor Cielo SA.
PagSeguro focuses on digital payments accounts and sells point of sales devices rather than traditional merchant processing.
Its shares, which have rocketed 50 percent since its IPO price, trade at 33.4 times its forward earnings, a very similar multiple to PayPal’s 33.7 times.
That is more than double the multiple for Cielo, Brazil’s only listed credit card services provider.
“They wanted to tap a tech investor base that does not exist in Brazil’s stock exchange”, according to one person close to the matter.
The bet paid off.
PagSeguro’s market capitalization of around $10 billion is nearly half of Cielo’s, despite the fact that its larger rival has five times the market share, according to Goldman Sachs’ estimates.
The IPO made the Frias family, controlling shareholders of UOL, Brazil’s biggest Internet content and services provider, into billionaires.
PagSeguro declined comment. UOL officials could not immediately be reached for comment.
In listing on Intercontinental Exchange Inc’s NYSE, PagSeguro followed in the footsteps of other Brazilian companies such as zinc and copper miner Nexa Resources SA and online retailer Netshoes Ltd.
Credit card processor Stone Pagamentos SA is also considering a New York IPO, Reuters reported in January.