IPO Launch: MediaAlpha Seeks $176 Million In U.S. IPO

IPOStreet

MediaAlpha (MAX) intends to raise $176 million in an IPO of its Class A common stock, according to an S-1 registration statement.

Los Angeles, California-based MediaAlpha was founded to create an online programmatic ad purchasing and management system for insurance carriers to obtain prospective leads for new customers.

Management is headed by co-founder, president and CEO Steven Yi, who was previously CEO of Fareloop, a travel comparison website.

The firm integrates its offering to connect with major Internet search engines advertising systems while providing insurance carriers with a single interface to manage their campaigns.

Below is a chart showing the firm's yield optimization concept:

mediaalphaoptimization

MediaAlpha has received at least $254 million from investors including White Mountains Insurance Group

The company pursues client relationships with insurance carriers via a direct sales force and counts '15 of the top 20 largest auto insurance carriers by customer acquisition spend as demand partners' on its platform, or 39.6% of its revenue for the twelve months ended June 30, 2020.

The firm generates fee revenue for each customer referral and such revenue isn't contingent on the ultimate sale of an insurance product to each consumer.

Sales and Marketing expenses as a percentage of total revenue have been dropping as revenues have increased.

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, has risen sharply in the most recent reporting period,

According to a 2020 market research report by Allied Market Research, the global auto insurance market was an estimated $739 billion in 2019 and is expected to reach more than $1 trillion by 2027.

This represents a forecast CAGR of 8.5% from 2020 to 2027.

The main drivers for this expected growth are an increasing number of road accidents in many countries as well as mandated insurance coverage in more regions and implementation of stringent government regulations.

Also, emerging economies will also see an increase in discretionary income producing growing demand for motor vehicles and their attendant insurance coverage requirements.

The Asia Pacific region is expected to produce the fastest growth through 2027 as it increases its adoption of mobile telematics technologies.

MediaAlpha’s management sees the direct-to-consumer market as the fastest growing insurance distribution channel in the years ahead, as tech-enabled distribution becomes more favored by younger demographic consumers.

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

  • Strong and accelerating topline revenue growth
  • Increased gross profit but reduced gross margin
  • Growing operating profit and operating margin
  • Sharply higher cash flow from operations

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

mediaalphapl

Source: Company registration statement

As of June 30, 2020, MediaAlpha had $26.4 million in cash and $167.1 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was $47.4 million.

MediaAlpha intends to raise $176 million in gross proceeds from an IPO of its Class A common stock, of which the company will sell 6.25 million shares and the selling stockholder will sell 2.99 million shares, offered at a midpoint price of $19.00 per share.

Both Class A and Class B common stockholders will be entitled to one vote per share. Class A shareholders will have 55.2% of voting power upon completion of the IPO transaction.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $1.2 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 15.75%.

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

We intend to [i] contribute $70.8 million of the net proceeds to the Company from the sale of shares of Class A common stock in this offering to Intermediate Holdco for Intermediate Holdco to purchase Class B-1 units of QL Holdings LLC from the Selling Class B-1 Unit Holders (which Class B-1 units will be converted into Class A-1 units of QL Holdings LLC) to provide liquidity to such Selling Class B-1 Unit Holders and [ii] contribute $24.0 million of the net proceeds to the Company from the sale of shares of Class A common stock in this offering to Intermediate Holdco for further contribution to QL Holdings LLC, and in turn to QuoteLab, LLC, which will be used, together with cash on hand, to repay outstanding borrowings under the 2020 Credit Facilities. We intend to contribute remaining net proceeds, if any, to the Company from the sale of shares of Class A common stock in this offering to Intermediate Holdco for further contribution to QL Holdings LLC to use for working capital, capital expenditures and general corporate purposes.

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

Listed bookrunners of the IPO are J.P. Morgan, Citigroup, Credit Suisse, RBC Capital Markets, Canaccord Genuity, William Blair and MUFG.

Commentary

MediaAlpha is seeking public investment to pay down some debt, provide liquidity to some shareholders and for working capital.

The firm’s financials show impressive growth across all metrics, which is especially notable as it has occurred despite the Covid-19 pandemic.

Sales and Marketing expenses as a percentage of total revenue have fallen; its Sales and Marketing efficiency rate has increased markedly.

The market opportunity for providing programmatic advertising to the direct-to-consumer insurance industry is significant and expected to grow substantially due to the increased demand from younger demographic insurance consumers changing preferences.

These consumers prefer to shop for and purchase insurance services online, ideally through a mobile phone app if possible, so they present insurance carriers of all types with a new opportunity to obtain leads efficiently through services such as MAX’.

J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 57.5% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, management is asking IPO investors to pay an EV/Revenue multiple of 2.47x.

For what is essentially a fast-growing and profitable software company, this IPO ask appears reasonable.

Given the firm’s accelerating growth trajectory, net profits, free cash flow generation and industry growth prospects, my opinion on the IPO is a BUY at up to $19.00 per share.

tstBUY

Expected IPO Pricing Date: October 27, 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.)

To receive automatic notification of new IPO activity, click the "+ Follow" button.

Comments

News

FEATURED
COMMUNITY