Tuesday 14 July 2020

Oatly: Failure of the capital markets

Now, you may or may not know of Oatly. They sell very carb-heavy milk substitute. Personally, I am a big fan and it has more or less replaced milk in my coffee.

Today though I am frustrated because of the news today that it has raised £200 million for expansion. Whilst I maybe a happy customer and pleased to see the company growing, I am dismayed by the use of celebrity endorsement. 

Clearly, Oatley approached the mega US fund Blackstone to help with a capital raise. They in turn have found some of their own money, but then plied the celebrity contacts they have such as Oprah Winfrey to find the £200 million. As part of the deal, the celebs have then lent their name to the launch which will help promote the company. 

The frustration for me is that all of this is in keeping with the trend away from the capital markets we have seen in recent years. Private funds, Private equity and private debt are all the rage. Going public, once the ultimate sign of success is relegated to a second order issue. In the US they have constantly lowered the amount of public equity needed, so that companies like Facebook can have what are effectively share listing when most of the money is still tied up with the original management - this used to be the key trade-off of going public, but no longer.

So we have companies like Oatly, doing well and now only available to the already rich and famous. If they do go public it will be the likes of Jay-Z who do best. Private Equity is not friendly towards retail investors. At least Blackstone is, maybe we have to console ourselves with owning shares in them. 

Increasingly though public markets are falling in terms of capital allocation. This is in my view is a bad outcome for Western society. If means the value created by new business goes increasingly only to those founders and the already wealthy investors they started with. The little guy misses our more and more, even the little guy's helpers - the pension funds - are not really in this game anymore. 

There is not much on the face of it you can do to stop this, rich people should be free to invest where they like and management free to raise capital from all legitimate sources. However, Governments could do more to reduce reporting requirements and increase tax incentives to go public so that we don't always see the rich getting richer.  


Matt said...

Let's wait until the fad wears off and see if the rich do indeed get richer. More likely is that when the sales drop off they have an IPO to sucker the public in at that stage.

Swiss Bob said...

Oatly or not, you make a good point. Too often a listing looks like the sale of last resort, when the owners or PE cannot do another private round or flip the company to another buyer... except the markets and pension funds. All too often recent IPOs and their underperformance tend to confirm this.

CityUnslicker said...

Swiss Bob, exactly. the fastest frowing bit of the PE sector is 'secondaries' funds which buy from other PE companies. So little is going near the market.

Matt - early investors in Amazoon, Uber etc have made many thousands of percent profits.You are I do not get a look in - fine, we never did. But neither do our pensions funds. Meanwhile, Oprah Winfrey is a talk show host and worth billions.

Matt said...

Thing is, the celebrities are there to make the mugs think "that's something I should be in on". It's a ponzi scheme until it hits the actual stock market.

The valuations on Oatly, Uber and others is based on a small amount of equity sold that is multiplied up. So, Oatly sells 10% for $200M therefore it's worth $2B.

Only it isn't until they can sell the majority to the suckers at IPO. They aren't (outside of Softbank) going to find private money mad enough to get burnt for the inflated valuation.

Not all are like this - AMZN being a counterexample. There are also problems with non-voting stock which does lead to control being left with the founders and the stockholders not having much say.

Anonymous said...

perhaps misguided. but i see two trends at work
so much cash sloshing about in private hands and a desire to spend it.

public listing is expensive and hard work. slightest slip of twitter or hint that your paperwork is not in order and you have various feds all over you. they do love to make an example of the little chap. and face it $200 on nasdaq is not the big league these days.

so raise the cash from the names, hang out with them. much more fun than keeping the teenage scribblers from writing something nasty or your finra docs uptodate.
wont stop it ending in tears if it all goes wrong though, passim wework.