Thursday , May 28, 2020

With a Planned IPO, Could Shift4 Be Looking at a Big Rebound Following the Ravages of Covid-19?

The middle of a pandemic is an intriguing time to tap the public markets, to say the least, but observers say there could be some upside ultimately for Shift4 Payments LLC, which on Friday filed its expected registration statement for an initial public offering.

The Allentown, Pa.-based payments-technology provider, which has become a principal supplier of transaction processing for mid-market and larger restaurant chains, is not commenting on its S-1 filing with the U.S. Securities and Exchange Commission, citing a quiet period. But observers are intrigued by the move, given the beating this merchant segment has endured since the onset of Covid-19. “It’s an interesting time for an IPO,” notes Greg Cohen, principal at PayXAdvisory, an investment and advisory firm specializing in the payments business.

Its latest filing shows Shift4’s financials improved through the first quarter, though the full impact of the pandemic did not begin to set in until late in March. Payments-based revenue came to $176.4 million in the March quarter, up by nearly one-third from the first quarter last year, according to the registration statement. Total revenue was up 29% to $199.4 million. At the same time, the company narrowed its net loss to $5.2 million from $13.5 million.

Overall, the company says it processes 3.5 billion transactions and more than $200 billion in volume annually for more than 200,000 merchants. On the integrated-payments side of its business, it works with more than 7,000 software developers.

In its filing, Shift4 indicates its gateway transactions for the week of March 22 plummeted to 7.5 million from 15.2 million the week before and 29.6 million the week of March 1. But this volume began improving in mid-April and reached 10.7 million by the week of May 3.

Still, the impact on the hospitality market is likely to be reflected in later months, starting with April, Cohen says, pointing to government orders in most states that shut down dining rooms and hotels. Business failures resulting from these moves are likely to follow in the second half of the year, he says. “If you’re operating a dining room at 50% capacity, you’ve got to have a lot of online orders to make up for that,” Cohen adds.

Some experts see Friday’s filing as a feint aimed at boosting Shift4’s value as a private company. “Normally these [S-1 statements] are filed when the company is thinking of selling and they want to use the filing/announcement to ‘threaten’ going public if they do not get the price they are looking for,” says Jared Drieling, senior director of consulting and market intelligence at The Strawhecker Group, a payments-consulting firm, in an email message. “Some eventually go public…but most do not.”

But Cohen says Shift4 may be looking to a big payoff for its technology sales when the pandemic subsides and business owners begin to pick up the pieces of failed and damaged enterprises. “We will see a lot of [business] attrition, but what comes back in place will be using cloud-based systems provided by companies like Shift4,” he predicts. “This will bottom out and they will benefit.”

Shift4’s first indications that it was looking to go public after 20 years in business emerged in December when it filed a draft registration statement for a public offering. At the time, investors’ appetite for businesses like processing that produce high recurring-revenue totals was yielding rich multiples of price to earnings.How those multiples will look on the other side of the pandemic is anybody’s guess. So is the exact timing of Shift4’s IPO. The typical timing is roughly four or five months following the S-1 filing, but there’s nothing typical about current events. “Regardless of the timing,” says Cohen, “it’s a great story.”

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