Restaurant tech group Toast tests appetite for consumer IPOs


IPOs updates

The restaurant technology provider Toast will test the appetite of investors in one of the year’s largest US listings on Wednesday, leading a wave of consumer-focused companies hoping that enthusiasm for new technology will override recent jitters about the health of the economic rebound.

Toast epitomises the post-pandemic rebound that has driven stock markets to repeated record highs and fuelled a red-hot market for initial public offerings so far this year. The Boston-based company primarily generates revenue by taking a cut of the payments processed through its systems, including handheld and desktop checkout devices.

It dismissed or furloughed more than half its staff at the height of the pandemic, but it bounced back as many restaurants pivoted to new businesses such as home delivery, and diners rushed back to eat out after lockdowns ended.

The offering price of $40 a share announced on Wednesday gave the seven-year-old company an implied market capitalisation of $20bn, more than double the price at which some of its shareholders sold their stock during a tender offer in November.

Toast is due to be joined in the coming weeks by companies that specialise in everything from gyms to jewellery and pasta sauce to plastic garden furniture. All of them have benefited from the unexpected strength of US consumers, but they are arriving on public markets just as concerns begin to mount about whether the resilience will be sustainable.

Like Toast, many of these companies argue they will be able to grow even if there is a consumer slowdown.

The shoemaker Allbirds has emphasised its internet-first business model in contrast to the high fixed costs of traditional bricks-and-mortar retailers, as has the eyewear brand Warby Parker, which intends to go public through a direct listing without selling any new shares.

The clothes rental service Rent the Runway, which filed for an IPO in July, argues that it benefits from stickier subscription-based revenues. And all three companies have touted their sustainable and responsible business practices.

Gareth McCartney, global co-head of equity capital markets at UBS, said the market for IPOs had been “as good as we’ve seen [it] in a decade” for most of this year. But, he added, “beneath the surface . . . there’s a slightly more cautious tone that’s tempering some of the optimism and enthusiasm we’ve seen. That’s driving a slightly more selective approach to assets among investors.”

Weak economic data in the US and China, the spread of the more infectious Delta coronavirus variant and the prospect that central banks will soon begin unwinding stimulus measures have all combined to knock investor confidence. 

On Monday the US stock market suffered its worst day of trading in months after concerns about the potential default of the Chinese property developer Evergrande sparked a global sell-off.

Toast’s IPO prospectus highlighted the risk posed by a more sustained downturn, warning that its main source of revenue depended heavily on factors outside its control such as the success of its customers’ restaurants and general consumer spending levels.

However, despite the short-term damage it suffered last year, Toast added that the pandemic would provide a long-term boost to its business by encouraging an “increased focus on the need for digital solutions”.

“We have confidence in the predictability of the industry,” said Kent Bennett, a partner at Bessemer Venture Partners and director at Toast.

The shoe maker Allbirds has emphasised its internet-first business model in contrast to the high fixed costs of traditional bricks-and-mortar retailers © Charlie Bibby/Financial Times

Warby Parker, founded by Neil Blumenthal and David Gilboa, intends to go public through a direct listing without selling any new shares © FT Commission

Jeff Sloan, chief executive of Global Payments, a $48bn payments specialist that competes with Toast in the restaurant industry, argued that this trend would be more important than the hit from Covid-19.

“There’s been more technology change in restaurants in the last three years than in the previous 30 years. There’s an enormous tailwind . . . that more than offsets any impact we saw in the restaurant business during the pandemic,” he said.

Sloan added that “I wouldn’t dismiss the Delta variant . . . I’m sure [Toast] will get questions about it as we do”. But he said recent payments data suggest consumer activity growing year-on-year, albeit at a slower rate than earlier in 2021.

Almost 300 companies have completed an IPO in the US so far this year, raising $110bn, according to Dealogic data. Including the deluge of special purpose acquisition companies that have listed this year, some $235bn has been raised across more than 700 deals.

The total amount raised is already almost 40 per cent higher than in the whole of 2020, with dozens more companies expected to list before the end of the year. 

Some observers are optimistic that the recent uptick in market volatility will prove to be shortlived. Last week analysts at JPMorgan Chase, for example, said most of the concerns that had made up the recent “wall of worry” were waning. 

Jurrien Timmer, director of global macro at Fidelity Investments, said: “Pent-up demand has been largely satisfied as the economy has reopened, but consumers generally are [still] pretty flush.”

Even prototypical consumer goods companies are arguing that the pandemic has resulted in structural changes during Covid-19, such as Keter Group, an Israel-based purveyor of indoor and outdoor furniture that filed for an IPO this month. The company said the pandemic had resulted in a ““shift toward suburban living”.

“The market has been very open-minded to consumer stories, particularly those with a tech overlay,” McCartney said, although he warned “the bar has gone up relative to where we were earlier in the year”.


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