Rocket Internet kicks off $970 million German e-commerce IPO

Berlin: Rocket Internet AG, the investor known for replicating businesses from Airbnb Inc. to Birchbox Inc., plans to raise €750 million ($970 million) in one of Europe’s most anticipated technology initial public offerings this year.

The sale will comprise only new shares, which will trade on the Frankfurt exchange before the end of the year, Berlin-based Rocket said in a statement on Wednesday. The IPO could value the seven year-old company at about €5 billion, people familiar with the matter said on Tuesday.

The sale proceeds will help chief executive officer Oliver Samwer bring more established online business models to markets such as Latin America, South East Asia, India and Africa. Shoe and fashion retailer Zalando SE, which received initial funding from Rocket in 2008, announced its own plan to sell shares to the public on 3 September.

Rocket’s IPO could become the largest in Germany this year, surpassing that of BRAAS Monier Building Group SA, which raised $640 million in June, according to data compiled by Bloomberg. Initial sales in the country raised about $1.3 billion in the first half, less than half what they did in the same period last year, the data show.

One test for Rocket’s valuation will be how it can translate sales growth into profit. Ten Rocket e-commerce startups for which shareholder Investment AB Kinnevik disclosed earnings — including Lamoda, Dafiti and Westwing — had an aggregate operating loss of €432 million last year on sales of €743 million, according to data compiled by Bloomberg based on a company report.

“As a young enterprise, we are not focusing on profitability at the moment,” Samwer said on a conference call. “We have a clear path for long-term profitability.”

In meetings with investors, Rocket has compared its business model with that of Jack Ma’s Alibaba Group Holding Ltd., people familiar with the talks said in June. Alibaba, the Chinese e-commerce operator, plans to sell shares this month and is targeting a valuation of as much as $162.7 billion.

Samwer said Rocket is “not concerned about any lack of interest,” resulting from IPOs by similar companies. He declined to comment on pricing and valuation, and said the company will report every six months after listing on Frankfurt’s entry standard, which has more lenient reporting obligations.

Rocket plans to move to the prime standard within 18 to 24 months, the company said. The six existing shareholders won’t sell their shares for at least a year after the transaction, according to the statement.

Berenberg Bank, JPMorgan Chase & Co. and Morgan Stanley are coordinating the offer, while Bank of America Merrill Lynch, Citigroup Inc. and UBS AG are joint bookrunners.

Dot-clone model

“Rocket should be able to get a small premium versus what recent investors have paid,” said Heinz Steffen, an analyst at Fairesearch in Kronberg, Germany. “Whether the business itself merits the valuation is another question.”

Brothers Marc, Oliver and Alexander Samwer have drawn criticism for cloning promising US Internet businesses internationally. Since starting their first so-called dot-clone in 1999, a German version of EBay Inc, they’ve duplicated sites such as those of Airbnb, EHarmony Inc. and Pinterest Inc. Rocket typically starts the companies, hires staff and provides initial marketing, design and management know-how.

“We believe investors will value the exposure they can get through us to these fast-growing markets,” Samwer said. “We will build more companies in new and exciting markets, invest ourselves and take Internet services global.”

Philippine Long Distance Telephone Co. and Germany’s United Internet AG last month injected €768 million into Rocket. Rocket subsequently got a bigger hold on several of its investments in an deal that gave a 2.5% stake to Holtzbrinck Ventures GmbH.

After that transaction, Rocket’s largest shareholder was the Samwer brothers’ Global Founders Fund with a 52.3% stake. Kinnevik of Sweden held 18.1%, United Internet had 10.4%, Philippine Long Distance Telephone held 8.4%, and billionaire Len Blavatnik’s Access Industries had 8.3%. BLOOMBERG