US-based Cloudera has gone public in a $225m initial public offering that gave semiconductor maker Intel and exit, but at a steep discount from its investment valuation, signalling that while the IPO market is improving, some corporates may have to accept paper losses in return for exits.
Cloudera issued 15 million shares on the New York Stock Exchange priced at $15.00 each, above the $12 to $14 range it had set. The IPO underwriters have a 30-day option to buy up to 2.25 million additional shares, which would push the size of the offering up to almost $259m.
Founded in 2008, Cloudera has developed a cloud-based hybrid open source enterprise data management platform that incorporates machine learning and advanced analytics to help subscribers improve their businesses and better design connected products.
The company slightly reduced its net loss from approximately $203m to $187m in the year ending January 31, 2017, while growing revenue from $166m to $261m over the same period.
Morgan Stanley, JP Morgan and Allen & Company are lead bookrunners for the IPO, while BofA Merrill Lynch, Citigroup and Deutsche Bank Securities are book-running managers, and Stifel, JMP Securities and Raymond James are co-managers.
The offering followed $670m in funding for Cloudera, $371m of which was invested by Intel in a $530m series F round in 2014. Intel, which provided the capital alongside the formation of a partnership whereby Cloudera optimised its software for Intel processors and architecture, bought another $371m of stock from existing backers to invest more than $740m in total.
Intel said at the time the purchases gave it an 18% stake in Cloudera, indicating that it invested at a valuation of approximately $4.1bn. The company owned a 22% stake pre-IPO and although it had expressed interest in buying up to 10% of the issued shares it has not so far announced any such deal.
In the event, Intel’s stake was diluted to 19.4% in the offering while venture capital firms Accel and Greylock Partners, the other shareholders with stakes above 5%, had their stakes cut to 14.4% and 11.1% respectively.
Internet and technology conglomerate Alphabet also took part in the 2014 round, through corporate venturing subsidiary GV, providing $160m alongside investment firm T. Rowe Price and entrepreneur Michael Dell’s MSD Capital vehicle, but had a share of Cloudera sized at under 5% pre-IPO. The first tranche reportedly valued Cloudera at just under $1.9bn.
Cloudera’s stock closed up at $18.09 on its first day of trading but its improved market cap was still only about $2.3bn, far below the valuation at which Intel invested in 2014. A person familiar with the deal told Fox Business that Cloudera had insisted on a higher valuation because it did not need additional cash after closing the first series F tranche.
Citing “people familiar with Intel’s thinking,” Fox Business has suggested Intel paid so much for the big data firm’s shares because it wanted to protect against an acquisition by one of its rivals, but decided against a full purchase because it did not want to alienate partner firms that also had big data products, and because the strategic alliance the companies formed ensured their respective offerings were compatible anyway.
The benefits of Intel’s investment in Cloudera arguably will not be fully clear for quite a while, though you could make the case that it illustrates the essence of strategic corporate venturing. However, it also indicates an issue that may increasingly become clear as the IPO market continues to improve.
The IPO market for technology companies in particular dropped off significantly in 2016, and while things have warmed up on that front this year, there remains a log jam of highly valued companies where investors are seeking an exit.
Even before the downturn, companies like Square and Box found themselves having to float at lower valuations than their last equity rounds. The question is whether businesses with higher valuations such as Uber or Dropbox, which have made significant losses throughout their history, will end up having to do the same, and if so how big a loss will some of their corporate investors have to swallow?