Uber may be ‘overvalued’ at its upcoming initial public offering (IPO), given the majority stock portion of its $3.1 billion acquisition of Dubai ride-hailing app Careem, according to a partner at corporate advisory and investment firm AQ&P.
Speaking to Arabian Business following the deal’s announcement, Fahim Al Qasimi said, “Stock price could go up and [Careem] could get a great deal. In traditional M&A, when deals are made with predominantly stock, it can be an indicator that the company [Uber] feels it’s overvalued and could use that overvalued stock to make big acquisitions,” he said.
Al Qasimi made a similar statement in a tweet this week, where he said, “…the stock portion of the deal indicates that Uber may be overvalued at IPO. Careem raised $771.7 million, so the cash portion of the deal is 2x ($1.4bn). It is the $1.7 billion in stock I question. I would watch this space with caution. Will the VCs make 10-25x?”
If this is true, then the stock portion of the deal indicates that #Uber may be overvalued at #IPO. #Careem raised $771.7 mn, so the cash portion of the deal is 2x ($1.4bn). It is the $1.7 bn in stock I question. I would watch this space with caution. Will the #VCs make 10-25x? https://t.co/QaWtna2CnV
— Fahim Al Qasimi (@fahimaq) March 24, 2019
Uber stock price
The advisor said he did not expect Uber to acquire Careem prior or this close to its IPO, adding that investors should keep an eye on how the convertible stock portion of the deal materialises following the IPO.
“The element that surprises me about the deal is that the number $3.1bn is $1.4bn in cash and $1.7bn in convertible stock… With an M&A (merger and acquisition) being this close to an IPO, to see the stock portion as the majority of the deal, was interesting for me, because it would be interesting to understand the convertible structure and how people would be compensated,” he said.
“I look at companies like Snap that went public, and their stock price is less than half of what it was when they went public… So because of the [deal’s] large convertible portion, I’d need to watch the Uber stock price from when they finalise their IPO and how it progresses over the next year, because those that will be compensated in stock, obviously that’s not a fixed number,” he added.
Tactical move
While Al Qasimi said the opportunity for liquidity was a “very tactical move” to make pre-IPO, he said Careem “needs to understand the volatility of the stock price and the terms of the convertible note”.
However, he praised Careem co-founders Mudassir Sheikha and Magnus Olsson for their achievement in the region and said the deal is “amazing for the country”.
“It’s a great indicator that great tech can be born out of here. It’s a sign that people who are bold can create something scalable,” Al Qasimi said.
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