AAA Square shapes $275m flotation

Square shapes $275m flotation

Square, the US-based online payment technology provider backed by corporates including payment services provider Visa and coffee chain Starbucks, filed for a $275m initial public offering yesterday.

Square’s mobile point of sale technology enables users to accept payment anywhere, with the company charging a flat 2.75% fee on each transaction. It has also expanded into complementary fields such as money transferring, payroll processing, small business financing and food ordering.

The IPO will follow $490m of equity funding, the most recent of which was the $150m in series F funding Square received from GIC, Goldman Sachs and Rizvi Traverse Management in October 2014 at a $6bn valuation.

Starbucks invested $25m in a $200m series D round that also featured Ritzi Traverse and Citi Ventures, which acts as financial services firm Citi’s corporate venturing unit, and which closed at a valuation of $3.3bn in 2012. Visa supplied an undisclosed sum in 2011 as part of a strategic partnership agreement.

None of the corporates own sizeable stakes in Square however, its largest shareholder outside of CEO Jack Dorsey being venture capital firm Khosla Ventures, which holds a 17.3% stake. Other notable shareholders include JPMorgan Chase (5.5%), Rizvi Traverse and Sequoia Capital (5.4% each).

Although Square has raised cash at large valuations, the success of the IPO could be affected by its financial situation, which is not especially health according to the filing.

The company made a $77.6m net loss in the first half of 2015 from revenue of about $561m, and although its revenue is steadily rising it has lost more than $420m over the past three and a half years.

Significantly, the filing also revealed that Square is set to discontinue the partnership it struck with Starbucks in 2012. The deal meant Square was the default payment processor for the coffee retailer, but the $123m in revenue it brought in in 2014 came with costs of $151m.

The underwriters for the offering are Goldman Sachs, Morgan Stanley, JP Morgan, Barclays Capital, Deutsche Bank Securities, Jefferies, RBC Capital Markets, Stifel, Nicolaus & Company and Loyal3 Securities.

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