ACV Auctions Inc., a Buffalo, N.Y.-based marketplace for used cars, which listed on Nasdaq on Wednesday, is one of them. Its underwriters relied on a digital platform to collect information from institutional investors about what they wanted to pay and how many shares they were looking to acquire. The company and the underwriters then set a price per share, and picked investors that submitted bids at or above this price. They also considered other factors, such as how long investors held shares following previous IPOs, according to ACV executives.
That is different from a traditional IPO, where investors don’t submit bids and underwriters largely determine share allocations, giving companies less of a say in the process. It is also somewhat different from an auction IPO, where investors receive shares if they bid above the offering price, but allocation is determined using a formula. In ACV’s IPO, the company and its underwriters chose its final list of investors and didn’t use a formula.
“It’s…a modification that gives you a little more visibility into investor appetite at different levels of [the] valuation,” said finance chief Bill Zerella. ACV priced its offering of 16.55 million shares at $25 a piece after it earlier this week raised the expected price range to between $20 and $22, up from an earlier estimate of $18 to $20. Shares closed at $31.25 Wednesday and have traded around $30 since then.
Three other companies—Airbnb Inc., DoorDash Inc. and Unity Software Inc.—used similar pricing methods to ACV in 2020, becoming the first companies in several years to use some form of auction-style pricing, according to Jay Ritter, a professor at the University of Florida who researches IPOs.
The market for IPOs, particularly of large technology companies, has boomed in recent months. Shares of big companies such as Airbnb and DoorDash, which went public late last year, surged following their first day of trading. Auction-style offerings can help ensure companies achieve as close to the maximum price that is possible for their IPO, Mr. Ritter said.
These types of IPOs are designed to reduce volatility in a company’s shares once they start trading, according to Brian Hirsch, co-founder and managing partner at Tribeca Venture Partners, one of ACV’s initial investors. One advantage is that the listing company can choose its final roster of IPO investors, said Mr. Hirsch, who is also a member of ACV’s board. Tribeca, which invests in early-stage companies, didn’t buy shares in ACV’s IPO, he said. Tribeca invested a total of $18 million in ACV across its early and growth-stage funds, and didn’t sell its stake in the IPO, according to Mr. Hirsch.
ACV executives said they considered other routes to the public market, including merging with a special-purpose acquisition company. But the company wanted to determine the valuation of the company based on pricing information from a range of investors. By contrast, ACV in a SPAC deal would have negotiated its valuation with a single acquirer.
ACV’s listing comes months after the company hired Mr. Zerella, an executive known for his experience in preparing companies for a listing. He served as CFO during the IPOs of Fitbit Inc. in 2015 and Vocera Communications Inc. in 2012. Before joining ACV in September, Mr. Zerella worked as CFO at Luminar Technologies Inc. He left that role before Luminar in August agreed to be acquired by a SPAC.
ACV, which was founded in 2015, raised a total of $350.5 million before its IPO from investors including Bessemer Venture Partners and Bain Capital Ventures, according to data provider PitchBook. Bessemer didn’t immediately respond to a request to comment, while Bain declined to comment on whether it bought shares in ACV’s IPO.
ACV generates revenue primarily by charging fees on its digital marketplace, where used-car dealers can sell their vehicles in 20-minute online auctions. The company doesn’t have a marketplace for individual buyers. It also generates revenue from providing other services such as vehicle transportation and short-term financing.
Revenue for the fiscal year ended Dec. 31 was $208.4 million, compared with $106.8 million a year earlier. ACV in 2020 reported a net loss of $41 million, compared with a loss of $77.2 million a year earlier. It declined to provide a timeline for when it will be profitable.
ACV plans to use the proceeds from its public offering to expand into new regions and increase hiring, particularly in research and development, executives said. The company operates in 47 U.S. states. It has about 1,600 employees, including about 100 in R&D, product and technology.
Acquisitions are also on the table, George Chamoun, ACV’s chief executive, said.
Auction-style IPOs make sense for companies that can generate strong demand from investors, according to Jeff Cohen, a partner in the capital markets practice at Linklaters LLP, a law firm. But the format can involve risks, especially for smaller companies, if institutional investors ultimately refuse to participate. That could happen if investors think there might be less of a chance for shares to jump following the offering, he said.
“I think everything is up for grabs in the IPO market,” Mr. Cohen said.
—Colin Kellaher contributed to this article.
This story has been published from a wire agency feed without modifications to the text.