Breaking the Bank: Moonpig sends greetings to investment banks

October 19, 2020

3 min read

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What's going on here?

Lockdown has seen a very successful turn of profit for Moonpig, which is now considering an initial public offering (IPO).

What does this mean?

Moonpig has recorded a profit before tax of £33m for the fiscal year of 2019 to 2020 and has cemented itself as the largest greeting card company in the UK. Moonpig has capitalised on the pandemic by offering enticing deals to customers, such as the Big Night In limited edition set of e-cards which feature celebrity collaborations. This has bolstered Moonpig’s profit which was up 137% on the same period last year. It also gained one million customers in the first eight weeks of lockdown as customers switched to online shopping. The owners of Moonpig, Exponent Private Equity, are now in talks to take the company public. This means that shares in the company can be sold to the public and retailers through an IPO. A company generally does this to raise more capital and boosts its public profile. The owners are likely to be in talks with investment banks to agree on the terms of the IPO before Moonpig floats on the agreed stock exchanges.

What's the big picture effect?

Raising capital is one of the main benefits for a company to go public, however, it will also give a company a greater ability to grow and expand. Moonpig can do this by using the raised capital to invest in new markets. By doing this Moonpig would be expanding its global position and extending its advantageous position over competitors. An advantage of this is that Moonpig would gain a larger customer base which could produce bigger profits for the company. When the company does go public, private investors may feel they can “cash in and earn the returns they were expecting” on their shares. This would be advantageous to investors who may have been personally affected by the pandemic. Another advantage is Moonpig’s exposure and public image would increase, this could promote more profit and investment if another lockdown was to happen.

As much as an IPO sounds like a win-win situation for Moonpig in the current climate, there are some disadvantages. One disadvantage is that the public may not want to pay the price of Moonpig’s shares. A consequence of this is it could lead to Moonpig not raising the capital they would have planned for. This could promote a poor image of the company if the market views the company’s assets as not being a valuable investment. A public company must also disclose financial, accounting, tax, and other business information. This could be harmful to a public company right now as it may give competitors the ability to gain an advantage using their disclosed information. A company launching an IPO must also heavily consider the legal repercussions because there is an increased risk of regulatory issues, specifically complying with the Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC). Moonpig should anticipate the time and preparation which will be needed to ensure the correct documents are sent to the governing authorities, which may include information such as Moonpig’s tax documents and corporate governance codes. The risk of shareholder actions could also increase, for example, if one or more shareholders choose to exercise their rights as partial owners to influence the decisions the company makes. Moonpig should anticipate the cost of legal fees, especially where there is preparation and drafting of legal documents. There could also be costs for resolving ongoing litigation and negotiation of legal documents before the IPO. Traditionally law firms use the billable hour to charge clients for their legal services, Moonpig should anticipate that there could be increased costs for them here. This is a risk Moonpig may not want to take with the uncertainty of the pandemic and the stock market.

Stock markets around the world have fallen because of the impact and uncertainty created by the pandemic. It may be a good time for investors to pick up cheap shares, however, it could be disastrous for Moonpig if they do not get their market price correct. Considering Moonpig’s recent success earlier this year, they may not want to risk losing the advantageous position they have gained during the pandemic. Should Moonpig wait for a more stable market before considering an IPO or hope the gamble pays off?

Report written by Harry Grice

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