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Snap's IPO Seen As 'Too Big To Fail' According To Investors

Snap's IPO Seen As 'Too Big To Fail' According To Investors
Snap Inc was helped in pulling off the biggest U.S.-listed technology share sale this week since Chinese e-commerce juggernaut Alibaba Group Holding Inc smashed records in 2014 by institutional investors anxious not to be left out of this year's marquee initial public offering.
Sources familiar with the offer said that despite concerns about the company's strategy, slowing user growth and lack of voting rights for new investors, the IPO of a buzzy social media group was a "must-have" for money managers keen to boost returns and with a dearth of new stocks to buy.
"Taking a piece of the company is almost a foregone conclusion," said Evan Pondel, president of investor relations firm PondelWilkinson Inc.
Snap was given a market value of nearly $30 billion by investors' ardor for Snap shares - which rose almost 50 percent in its market debut on Thursday.
Technology investors said that there is a lineup of smaller technology companies preparing to list in the coming months that could benefit from residual investor enthusiasm, although blockbuster names such as Uber Technologies Inc and Airbnb Inc are not expected to go public this year.
By limiting supply, a common tactic deployed on big tech IPOs, Snap's bankers tried to ensure a successful market launch. Sources familiar with the IPO strategy told tghe media, speaking on condition of anonymity as the process is private that Snap offered only 15 percent of the company to investors, including retail investors and short-term hedge funds.
"All this concern about the number of users slowing down - a tech IPO of this sort has nothing to do with the business, nothing," said Philippe Collard, founding partner at Yabusame Partners, which advises technology startups. "It has everything to do with a financial transaction where you create artificial demand.”
Institutional investors are not above quickly "flipping" a stock if they see an opportunity even though hedge funds are famous for buying into an IPO only to sell shortly after.
But the amount of churn was limited as, in an unusual stipulation, a quarter of the new offer was subject to a one-year lockup.
Because of their size and their tendency to hold stocks for longer, large actively managed mutual funds are among the most sought-after IPO investors. By virtue of being prolific IPO investors and providing the banks' brokerage business with trading fees, they develop strong ties to IPO underwriters.
And as investors redirect tens of billions of dollars each month into index-tracking funds, which cost less and over time have performed better, these funds are also under pressure to boost performance.
Demand among investors for a new internet stock had been pent up significantly. And after a long dry patch in the technology IPO market, with 2016 the slowest year for such launches since 2008, Snap, the parent group of popular disappearing-messaging app Snapchat, went public.
Acquisitions and buy-backs have zapped investors in public technology companies of places to park their cash in addition to the absence of new shares. According to Thomson Reuters data, last year technology IPOs were outpaced by a ratio of 38 to 1 by technology mergers and acquisitions and buybacks.

Christopher J. Mitchell

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