Tue. Oct 19th, 2021

Special purposes for acquiring businesses

Private capital markets are so hot that they now need money in the public market. Forge Global, a marketplace where shareholders of private technology companies can buy or sell their shares, announced on Monday that it will be made public. It will be listed by a Spac reverse merger at an enterprise value of $ 1.6 billion.

In the last three years, Forge has said that the number of unicorns – private technology companies worth $ 1 billion or more – has more than doubled. They are now collectively worth more than $ 2 tons.

Yet the private market continues to trade a decline in the activity of capital markets. Forge’s total annual transaction value is only $ 3 billion. The commission, or ‘take rate’, of 2 to 3 percent is juicy. But it only expects to generate about $ 200 million in annual revenue in the coming years. While comparing it to Nasdaq, the lack of scale leads to operating losses.

Just like Forge, Nasdaq and Carta have tried to build exchanges that provide transparency and liquidity for private equity. Public market trading has become largely efficient and inexpensive. As such, stock exchanges consolidated and forced into new areas, such as selling data. In turn, Forge offers trust and custody services as well as data entries from private companies in the belief that a more sophisticated private market can contribute to an increase in the buying and selling of shares.

Apart from fees and commissions, transactions in private markets were often carried out at a discount on previous valuations for financing trips or unbound by the prices that businesses trade as public companies. Forge, however, says that does not have to be the case. It claims that $ 500 million worth of Palantir transactions in 2020 helped the software company figure out where to price its direct listing on the NYSE.

Over time, commissions on private transactions are likely to decline. If this happens, the volume will have to accelerate. Instead of hoping companies stay private forever, Forge believes the exchange is the best preparation for publication.

Lex recommends the FT’s Due Diligence newsletter, a compiled information session on the world of mergers and acquisitions. Click here to sign up

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