Endeavor IPO; LLR & NewSpring get big exit; ShopRunner returns & more

Endeavor Group Holdings started trading on Thursday following its IPO (NYSE: $EDR), closing just above its IPO price of $24 per share. It now has a $10.6 billion marketcap. Among other businesses (such as IMG and UFC) , Endeavor owns marketing agency 160over90, which originated in Philly, but has since become the brand name through which Endeavor rolled up its other marketing and branding agencies.

Endeavor acquired the Philly agency for a reported $200 million in 2018.

Endeavor President Mark. Shapiro indicated today that marketing and advertising will continue as important growth & acquisition targets for the company. Endeavor’s IPO valuation was questioned by some observers.

160over90 has some 100 people in Philadelphia. It was founded by Darryl Cilli and Shannon Price Slusher in 2001.

Amsterdam-based MessageBird BV has agreed to buy Columbia, Md-based Message Systems at a valuation of $600 million, the Wall Street Journal reported. MessageBird BV already provides text, voice and video services, and is acquiring Message Systems, which does business as SparkPost, to add email to its capabilities and to strengthen its position in the US market, which figures heavily in its growth plans..

Philly firms LLR Partners and NewSpring Capital, having first invested in Message Systems in 2015, will exit with the acquisition. They also participated with PNC in a $180 million debt & equity funding of Message Systems early this year.

I’m often surprised by how much business is generated by messaging systems. SparkPost is mostly geared toward enterprises.

LLR and NewSpring had dealt with a Dutch firm before, buying supply chain software firm Quintiq, which was later sold to Dassault. Such experiences are often important for foreign firms in deciding who to do business with.

Michael Rubin saw ShopRunner, which formerly was a part of his Conshohocken-based Kynetic LLC holding company, as a two-day delivery alternative for the entire non-Amazon world. But Kynetic sold ShopRunner to FedEx late last year.

Now FedEx is teaming up with Adobe Commerce, the recently renamed Magneto (acquired in 2018 for $1.7 billion), on a new two-day delivery service.

ShopRunner had 10 million members in 2019, many of whom get the service for free through other account relationships; Amazon Prime now has over 200 million according to Jeff Bezos.. Many of the in-store retailers who. were listed as major ShopRunner participants a few years back have now vanished; presumably they’ve been replaced by online retailers.

ShopRunner would also give Adobe Commerce a shipping solution that Shopify does not have at present.

Amazon said yesterday that its doubling down on its logistics business, on top of a momentous Covid year of 2020.

The market for enterprise tax software was once a sleepy corner of the enterprise software business, but it has definitely heated up. Seattle-based Avalara, founded in 2004, went public in an IPO (NYSE: AVLR) in 2018. Around the same time, the Supreme Court in its South Dakota v. Wayfair decision allowed states to collect taxes from online sales, vastly increasing demand for online tax solutions.

King of Prussia-based Vertex (Nasdaq: VERX), founded in 1978, joined the party last July with its own IPO. Avalara, which has made 11 acquisitions, has a market value of over $12 billion. Vertex has a marketcap of $3 billion, the same as it was valued on the day of its IPO.

Fintech giant Stripe just announced it was acquiring another competitor, Boston-based TaxJar. Terms on that deal weren’t disclosed, though TaxJar’s last private valuation was $179 milion.

Vertex seems to work closely with SAP, though I don’t think there’s anyhing unique about that relationship.

Accolade, which has Philly-area offices in Plymouth Meeting, is nominated for an award this year in it second HQ city, Seattle. Its up for Seattle tech site GeekWire’s “Deal of the Year” (IPO & Acquisition) recognition.

Accolade has already won an award in Philly. Back in 2016, it won a PACT Enterprise Award for Healthcare innovator.

Accolade to acquire telehealth startup for $460 million

Tom Paine

Accolade (Nasdaq: ACCD), jointly based in Plymouth Meeting and Seattle, announced late today that it would acquire Houston-based telehealth startup 2nd.MD for $460 million, in a combination of cash & stock..

2nd.MD will enable Accolade users to obtain 2nd opinions when necessary.

Accolade CEO Raj Singh said in a statement. “With the addition of 2nd.MD, we’ll nearly double our total addressable market while providing the most comprehensive, integrated healthcare navigation experience available.”

Covid-19 has likely been a net plus for Accolade in recruiting more corporate clients, who contract for the service so its employees may access it as part of their benefits packages.

Accolade’s market value is now $2.6 billion, and it looks like its stock has climbed more than 10% in the wake of its announcement.

Accolade prices IPO

Tom Paine

Philly (Plymouth Meeting) & Seattle-based Accolade, which filed for an IPO back in February, announced its pricing this morning. The IPO’s timing was likely slowed down by Covid-19.

Accolade provides healthcare navigation assistance to client companies’ employees.. It combines the use of smart technology with human assistance. Comcast is its largest customer.

Accolade will price 8.75 million shares at between $19 and $21. raising $175 million at the midpoint and valuing the company at nearly $1 billion. Investors include Accretive at 26.9%, Andreessen Horowitz at 16.2%, Carrick Capital at 9.9%, and Comcast Ventures at 6.9%

Andreessen Horowitz also led a recent round in another Tom Spann-founded startup, Brightside. .Spann has no formal ties to Acccolade since stepping down from its. board late last year.

Accolade showed a $51.3 million net loss on $132.5 million in revenue for its fiscal year ending Feb. 29. I don’t think its unit ecconomics have been proven out to the point where they are projectible yet.

But it will probably draw a great deal of interest as a new concept in the hot digital health sector.

The company has applied to list on Nasdaq, under the ticker “ACCD.”

Questions from Accolade S-1

Tom Paine

See my previous post on Accolade’s IPO filing here.

Accolade, based in Plymouth Meeting and Seattle, submitted an S-1 to the SEC Friday (February 28) outlining plans for an IPO.

Conclusion: Some analysts probably have better information, but from info available to the general public it’s difficult to come up with an intelligent set of metrics for assessing its valuation. Not that it’s a unique case.

Accolade has raised at least $230 million in venture financing according to CrunchBase, and its last known valuation was $620 million according to Pitchbook.

It’s difficult to build a meaningful projected financial model for Accolade. Not enough history, and the economics are skewed by very large customers and high upfront development costs.

Its largest customers, Comcast Cable, Lowe’s and United Airlines, together accounted for 60% of its revenue for its 2019 fiscal year. Comcast alone represented 35% of its revenue for the year.

Customer concentration is a risk factor.

Accolade is not truly a tech company, but a technology-enabled health services company. No matter how much engineering it does, the variable people cost will still be there.

Some other health information companies that originally were full fledge tech firms are now adding more of the human factor in.

Hard to project future gross margins.

Adjusted gross margins were 30.9% in FY 2018 versus 36.4% in FY 2019; These will have to continue to improve..

Financial results for FY 2020 were left empty for now; looks like they might be filled in later (fiscal year ended 2/29)

Comparison: Perhaps the closest “twin” to Accolade is its Plymouth Meeting neighbor Health Advocate. It was snapped up by Omaha-based West Corporation for $265 million in 2014. Then buyout firm Apollo Global Management bought West Corporation (now Intrado Corporation) in 2017. Health Advocate has almost the same number of employees as Accolade, but I haven’t found any breakout of its financials.

Accolade relies on using AWS and Google Cloud for IT processing.

Accolade files S-1 for IPO

Tom Paine

Accolade Inc. today filed an S-1 with the SEC for a planned IPO. The number of shares to be offered and the price range for the offering have not yet been determined. Accolade intends to list its common stock on the Nasdaq Global Select Market under the ticker symbol ACCD.  

Here’s the S-1: https://www.sec.gov/Archives/edgar/data/1481646/000104746920001123/a2240822zs-1.htm

Accolade offers a service usually provided to enterprises that helps guide their employees through the healthcare maze to get the care that they need. Comcast is a major customer, by itself accounting for 35% of Accolade revenue in 2019.

Accolade is jointly based in Philly (Plymouth Meeting) and Seattle. The plurality of employees (about 500) are based in Plymouth Meeting, according to. LinkedIn, out of 1174 total as of November 30, 2019 as reported by the company. Investors include Andreessen Horowitz, Carrick Capital Partners, Madrona Venture Group, McKesson Ventures, and Humana.

 Revenue is up more than 47 percent so far this year: $88.1 million for the nine months ended in November 2019, with a net loss of $49.2 million for the same period. Its fiscal year ends this month.

Accolades’ last stated valuation was around $620 million. The $100 million target for the IPO mentioned in the filing is merely a placeholder.

Tom Spann was the Founding CEO of Accolade. Now it is headed by CEO Rajeev Singh, who cofounded SaaS travel expense tracker Concur and sold it to SAP for $8.3 billion in2014.