September 18, 2014
Article by Drew Bernstein, Co-Managing Partner of Marcum Bernstein & Pinchuk, "Betting On Jack Ma: Three Keys to Alibaba's Success," Featured in Forbes
The Alibaba Group IPO has all of Wall Street enthralled as the company hits the New York Stock Exchange. Little wonder, as this is a company of superlatives.
The offering is set to be the largest tech IPO ever with more than $20 billion of stock for sale. Six lead underwriters, 160 bankers, over 300 institutional salespeople, and thousands of brokers are working the deal. Alibaba is the largest online merchant in the world, with $240 billion in merchandise sold in 2013.
More than the company, this is an opportunity to invest in Jack Ma, who has proven himself to be the most resourceful and dynamic CEO in all of China. Beyond Alibaba he also founded China's dominant online payment service, Alipay, and runs Yu'e Bao, a provider of wealth management products that are sucking consumer savings out of China's largest banks.
Jack Ma is often favorably compared to the likes of Jeff Bezos, Steve Jobs, and Warren Buffett, but if Alibaba is going to be successful as a U.S.-listed company he has to convince investors he will do as well for them as he has done for himself.
That makes him the biggest selling point and the biggest risk to Alibaba's story. This is not Alibaba's first trip to the IPO rodeo. In 2007, its B2B site alibaba.com went public on the Hong Kong Stock exchange at the very peak of the market. Five years later, Jack Ma took it private following a string of disappointing earnings and a trading scandal that saw the exit of its top two officers.
The U.S.-listed Alibaba will include the company's fast-growing B2C platforms, Taobao and Tmall, but carves out the other jewels of Alibaba Group's empire, Alipay and Yu'e Bao. Both of these entities will remain private companies owned by Ma and other select investors. Given how closely intertwined the operations of these companies are, the potential for conflicts of interest is enormous.
And with a governance structure that places all decisions in the hands of 30 senior executives, Ma will essentially call the shots.
In the past decade, I have worked with more than 100 Chinese companies in the capacity of auditor, provider of financial due diligence to institutional investors, and as a board member. During that time I've seen many companies that had blazing fast growth, but ultimately disappointed public market investors.