Escrow plans for existing investors sank Firmus float: report

An unwillingness by investors to commit to holding onto shares in AI data centre builder Firmus once it floated on the ASX appears to have sunk the $44 billion IPO, suggesting that the valuation made the business a financial hot potato key backers didn’t want to be stuck with.

The Australian reports that a shareholder split over selling restrictions contributed to raise failing to attract enough support, despite claims of investor interest “well in excess of the offer size” for the US$5 billion book-build earlier this month.

The IPO unravelled in less that 48 hours with Firmus halting the listing on October 9. There’s now talk of a Nasdaq listing.

While some observers blamed local investors – cofounder and co-CEO Oliver Curtis said it was a “missed opportunity for Australia” claiming the country “generally will take dim views on people taking risk” – the Oz details how key backers, including US giants Nvidia, Blackstone and Coatue, as well as northern NSW fund Tectonic Investment Management, rejected voluntary escrow agreements for Firmus stock.

Voluntary arrangements are negotiated, rather than imposed under ASX’s mandatory escrow rules. Escrow stops existing shareholders selling some or all of their shares for a set period – typically 1-2 years – after listing, helping limit selling pressure that could drive down the share price.

Typically, an IPO involves mandatory escrow for founders, promoters and related parties for around two years, alongside 12 months for others. As part of a listing, the ASX requires that least 20% of a company’s main shares are held by non-affiliated shareholders, free of both mandatory and voluntary escrow.

In Firmus’ case, 42.4% of shares were to be placed in escrow, with 57.6% potentially available to trade on opening day. The issue becomes who carries the risk once trading began. Firmus was due to debut on the ASX this week.

Investor divergence

The Australian said local investors Wilson Asset Management and Ellerston Capital signed up for the voluntary escrow agreement. But the US big three also declined, alongside Tectonic, which backed Firmus for more than five years to build a 4% stake, worth $1.76bn at IPO valuation. Tectonic’s rejected plans to lock up 80% of its holding because of the concentration risk. Firmus represents more than 80% of its assets under management.

While there are suggestions Firmus left sorting out escrow too late – the 40/60 split had already raised eyebrows – potential new investors could rightly be concerned that large shareholders had the ability to profit-take on debut, creating downward pressure on the IPO price just as the company began trading. Escrow also leaves those investors vulnerable to construction delays, funding difficulties or disappointing earnings.

While declining escrow isn’t an intention to sell, it does create uncertainty about how much stock might hit the market, making it harder to assess risk. Those agreeing to the lock up would have been left holding the bag if things went south for a loss-making AI data centre builder with few runs on the board and ambitious future earnings predictions.

Firmus is targeting US$5bn in annual earnings before interest and tax by 2028, assuming its data centre expansion plans in Asia and Australia run to plan, but to do that it predicts US$35.4bn in server spending and US$970m for construction.

The Australian reports Curtis is now seeking about $4bn privately after the abandoned float. The question is now how much risk would incoming investors share with existing shareholders, and who retains the flexibility for an exit if expectations changed on a business, worth billions, that’s just two years old.