New details emerge in $582 million fintech IPO. Here’s what it means for Charlotte.
As fintech AvidXchange proceeds with one of the largest local initial public offerings in recent years, financial experts say the effects will stretch well beyond the company’s Charlotte campus.
A new filing this week with the Securities and Exchange Commission provided additional details about the anticipated offering: The payment software company is seeking to raise $581. 9 million, offering 22 million shares of common stock priced between $21 and $23.
There will be about 191.4 million shares of common stock outstanding after the offering, AvidXchange said in its SEC filing.
At a share price of $22, the midpoint of the filing range, the IPO would put the value of the firm at more than $4.2 billion. That’s a greater market capitalization than several other prominent public companies in Charlotte, including Coca-Cola Consolidated, window and door maker Jeld-Wen Holding and LendingTree.
AvidXchange automates bill payments and invoices for midsize companies. It was founded by CEO Michael Praeger in a Charlotte coffee shop in 2000.
The public offering, if it goes well, would turn AvidXchange into one of the city’s homegrown success stories.
The effects could be “very much material” for Charlotte’s financial scene, said Shawn Munday, a finance professor at UNC Chapel Hill’s Kenan-Flagler Business School. “It’s a huge branding event, for the company and for Charlotte.”
Rapid growth for AvidXchange
There’s likely one main factor driving AvidXchange’s decision to go public, said Munday, who advised on IPOs and other transactions for more than a decade as a managing director at Citigroup. It’s the same reason that most companies file for a public offering: access to a much larger and liquid source of capital.
AvidXchange has more than 1,500 employees across seven offices, it said on its LinkedIn page. In 2018, the company had said it would more than double its local headcount of 1,200 over the next five years.
And in 2019, it announced plans to add a second building at the company’s Charlotte headquarters next to the AvidXchange Music Factory north of uptown.
AvidXchange’s rapid growth in recent years has been driven by a combination of acquisitions and private funding. The company has counted PayPal founder Peter Thiel and former Bank of America CEO Hugh McColl among its investors.
Munday called the $582 million offering a sizable IPO.
And AvidXchange is likely to benefit from high investor interest in the fintech industry, he said, noting that it’s a “particularly hot sector” in the IPO market and for venture capital investors now.
The company did not respond to a request for comment on the IPO.
New view of AvidXchange finances
AvidXchange’s filings with the SEC also offered the first inside look at its finances.
The company has experienced net losses and negative cash flows from operations since inception, it said in the filing. AvidXchange reported a net loss of approximately $101 million for last year and revenue of about $186 million, the filings said. In 2019, the firm reported a net loss of $93.5 million and about $150 million in revenue.
Such results are typical for expanding tech firms that are plugging revenues back into growth efforts, Munday said.
Potential investors will be looking for signs of a turning point to positive cash flow in the future, he said. That could include shrinking losses, improving margins or increasing revenues. “There has to be a path toward profitability,” Munday added.
IPO boosts stakeholders
The offering, if successful, also could substantially benefit several major stakeholders.
Praeger, the CEO, owns more than 14.1 million shares, about 7.4% of the company’s total after the offering. At $22 each, those shares would be worth more than $300 million, at least on paper.
Other large stakeholders include Bain Capital Ventures, which owns 23.4 million shares, or 12.2% of total shares after the offering, and Mastercard Investment Holdings, Inc., which owns 12.4 million shares or about 6.5% of total shares after the offering.
Several executives and members of the company’s board of directors could also make millions of dollars on paper when the company goes public.
Creating opportunities out of the IPO
Taking AvidXchange public will likely benefit more than just company leaders, said Tariq Bokhari, a Charlotte city councilman and executive director of Carolina Fintech Hub, a nonprofit partnership working to grow the fintech industry in the region.
“That access to capital and their growth strategy is going to create jobs,” Bokhari said. “It’s going to create opportunities for other startups and innovators to partner, to be acquired and exit —to do all these things that the capital provides.”
In its SEC filings, AvidXchange said it would use the $445 million estimated net proceeds of the IPO for “headcount expansion, continued investment in our sales and marketing efforts, product development, general and administrative matters, and working capital.”
The firm has also stated that the funds could be used for further acquisitions, although it said it has no definitive plans to do so.
While privately held firms tend to concentrate wealth among fewer people, Munday said publicly traded companies disperse it more widely. “When you have... capital in individuals’ hands, it creates the ecosystem that kick-starts and spurs future investments,” he said.
A boost for Charlotte
There’s no guarantee that AvidXchange’s IPO will be a smooth one.
Even for the largest and most well-prepared companies, Munday said that completing a successful offering can sometimes feel like “being on a high speed train and trying to jump through a window and land on the platform at your stop.
“There’s lots of execution risk,” he said of IPOs. For example, the company might not attract enough investor interest ahead of the offering, or the stock price could fall after it goes public.
In the coming days, AvidXchange will finalize a stock price and number of shares. It will also set a date for the offering, when it will start trading on the Nasdaq exchange under the stock ticker “AVDX.”
Bokhari said that if it’s successful — and he’s confident it will be — he’d expect other fintech firms to emerge with an interest in Charlotte. The city already has attracted similar expansions from companies like Robinhood and Better.com.
“That-self fulfilling prophecy is something that we can build and build on,” Bokhari said.
AvidXchange’s success would fit into a larger narrative of economic growth in the Charlotte region, said Mark Vitner, a managing director and senior economist at Wells Fargo. Such growth has been driven by a strong financial infrastructure, broad talent pool and relative affordability compared to larger markets.
Those factors have benefited AvidXchange and drawn more people and businesses to its headquarters city in the past two decades, Vitner said. The company’s IPO could prove that some of that success can be homegrown.
“It’s a natural extension of what is already here,” he said. “It validates the idea that a tech start-up can be successful in Charlotte.”
This story was originally published October 8, 2021 at 6:35 AM.
