IPO Launch: Mavenir Proposes Terms For $300 Million IPO

IPOStreet

Mavenir plc (MVNR) intends to raise $300 million in an IPO of its Class A ordinary shares, according to an S-1 registration statement.

Richardson, Texas-based Mavenir was founded to develop cloud-based software tools for tier 1 and other wireless service providers in global markets operating 2G - 5G networks.

Management is headed by president and CEO Mr. Pardeep Kohli, who has been with the firm since 2016 and was previously CEO of Xura and president and CEO of Mavenir Systems through its public offering and ultimate acquisition.

Below is a brief overview video of Mavenir:

Source: Mavenir

The company’s primary offerings include software for:

  • Voice
  • Messaging
  • Video
  • Connectivity

Mavenir has received at least $892 million from investors including Mavenir Private Holdings I (Siris Capital).

The company sells directly to wireless service providers. It counts as customers more than 250 WSPs serving nearly 4 billion subscribers in 120 countries.

MVNR also has 17 of the 20 largest WSPs in the world as customers and 50% of its customers have been with the firm for 12 or more years.

Selling, G&A expenses as a percentage of total revenue have been uneven but trending lower as revenues have increased.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, rose to 0.5x in the most recent reporting period.

According to a 2018 market research report by Grand View Research, as a proxy for market size, the global wireless infrastructure market was an estimated $69 billion in 2016.

The market is expected to grow at a CAGR of 5.7% from 2018 to 2025.

The main drivers for this expected growth are growing demand for advanced technologies, including 4G, LTE and now 5G capabilities.

Also, as an illustration of the expected market growth, the chart below shows the historical and projected growth in U.S. wireless infrastructure market:

mavenirmkt

Major competitive or other industry participants include:

Mobile Network Equipment Vendors:

  • Ericsson (ERIC)
  • Nokia (NOK)
  • Huawei

Point-Solution Providers:

  • Altiostar
  • Microsoft (MSFT)
  • Oracle (ORCL)

Mavenir’s recent financial results can be summarized as follows:

  • Growing topline revenue at an accelerating rate
  • Increased gross profit but decreasing gross margin
  • A swing to operating profit
  • Reduced cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

mavenirpl

Source: Company registration statement

As of July 31, 2020, Mavenir had $47 million in cash and $942.6 million in total liabilities.

Free cash flow during the twelve months ended July 31, 2020, was negative ($40.2 million).

Mavenir intends to raise $300 million in gross proceeds from an IPO of 13.6 million of its Class A ordinary shares, offered at a proposed midpoint price of $22.00 per share.

Class A ordinary shareholders will be entitled to one vote per share while the Class B shareholder, Siris Capital Group, will have ten votes per share.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $2.2 billion, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 17.41%.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds from this offering to pay $195.5 million to Mavenir Private Holding I Ltd., an affiliated entity of Siris Capital and our controlling shareholder, to satisfy in full a note incurred by us immediately prior to this offering, to repay certain outstanding indebtedness under our 2018 Term Loans and for general corporate purposes. The $43.7 million of indebtedness related to the 2018 Term Loans to be repaid with the proceeds of this offering matures on May 8, 2025, and as of October 20, 2020, bears interest at the rate of 7.0%.

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are Morgan Stanley, Goldman Sachs, J.P. Morgan, BofA Securities, Barclays, Guggenheim Securities, Macquarie Capital, and Needham & Company.

Commentary

Mavenir is seeking public investment to pay off debt owed to its private equity firm controlling shareholder Siris.

The company’s financials show accelerating revenue growth, a swing to operating profit, near breakeven on a net basis and reduced use of cash in operations.

Selling, G&A expenses as a percentage of total revenue has been uneven but reduced in the most recent reporting period; its Selling, G&A efficiency rate has improved.

The market opportunity for providing software to wireless service providers looks to be an expanding market worldwide, as operators seek to upgrade their systems to provide more services to demanding customers.

Morgan Stanley is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 42.1% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, given the firm’s accelerating revenue growth rate, swing to operating profit, near net breakeven and industry outlook, at an EV/Revenue of 4.76x, the IPO appears reasonably valued.

My opinion on the IPO is a BUY at up to $22.00 per share.

tstBUY

Expected IPO Pricing Date: October 28, 2020

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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