Wanda Sports Group Misses IPO Target by 60%, Share Price in Free-Fall
Wanda Sports Group (WSG), the sporting arm of the Chinese conglomerate Dalian Wanda Group, raised $190.4 million in a smaller-than-expected U.S. IPO on Friday July 26. The Infront Sports & Media AG (a Swiss marketing co.) and World Triathlon Corp. (WTC, the co. behind the IRONMAN) owner priced shares at $8 (below a previously reduced $9-$11 target, originally $12-$15), valuing the company at +/- $1 billion. The share price declined -35.5% (to $5.16) on the first day of trading and has continued to slide since (closing at $4.92 on 7.31). Triathlon participation is on the decline - the NYT reported U.S.A. Triathlon membership is down -25% over the last 5 years, but it’s the company's debt-laden balance sheet and a geopolitical climate that has the U.S. investor hesitant to invest in Chinese businesses that explain why WSG had 2nd worst debut of 2019. The worst IPO of the year was held by another Chinese corporation, Ruhnn Holding.
Howie Long-Short: WSG had initially set out to raise $500 million. Two days prior to the IPO the company lowered their target to $308 million, so selling less than $200 million worth of shares must be considered a disappointment. The shortfall also begs the question, if the company is $300 million short of the capital infusion needed, are any of the future projects in which the IPO was based in danger of being shelved? It certainly won’t become any easier to raise the balance given how much they missed by.
Missing the company’s target by 60% - and then watching the share price immediately fall another -39% - would indicate that WSG either lacks an understanding of the U.S. marketplace or the leadership to pivot when it was determined that the market was too soft for the product. Neither of those scenarios would give an investor confidence.
Geopolitical issues are also contributing to tepid investor interest. With the Chinese government pushing down on industries deemed to be potentially harmful (see: video games), there’s a level of uncertainty currently surrounding China-based sports or leisure driven entities.
Triathlon participation numbers in the U.S. are dwindling, so it’s reasonable to suspect that too has contributed to the WSG fire sale. The NYT article focuses on the high costs associated with the sport (think: bikes, swim time), but the formation of less demanding experiential athletic events like Tough Mudder and Spartan Race is the real source of the decline. The perception exists that millennials or Gen-Z’s who would otherwise attempt participate in IRONMAN events now have other options.
President Philippe Blatter swears there is a “long-term strategy” in place, but inquiring minds would like to know what that vision is. A review of the company’s holdings reflects a hodge-podge of niche properties. Bill Squadron (former President of Bloomberg Sports, experienced in acquisitions, strategic planning and large scale joint ventures) wonders “do they want to be a global rights distributor or is their desire to own properties and operate events? Companies are typically defined by a single area of expertise. Theirs is unclear and my experience with publicly traded sports properties has been that the market responds most favorably when a company’s direction is certain.” It’s difficult for an investor to get comfortable with an equity if they’re unable to confidently forecast the future.
Announcing plans to use a significant portion of the “proceeds to repay debt” won’t excite investors, but Squadron says there are so many other factors (think: rights agreements, long-term partnerships) that an investor would look at to assess a company’s full financial picture. He’s right, debt’s not necessarily indicative of poor financial standing, but WSG saw profits decline -31% in 2018 (to $60 million), the company posted a $9.5 million loss in Q1 ’19 and as mentioned, generates its revenues from a collective of niche sports. There’s little to excite U.S. market makers.
For reference purposes, Dalian Wanda (over) paid $1.2 billion for Infront and another $650 million for WTC back in ’15.
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