By this measure, K-pop megastars BTS struck the wrong note with their IPO
The $760 million BTS left on the table ranks among the two dozen highest amounts forgone in all debuts on U.S. exchanges over the past several decades.
BTS made music history when it became the first K-pop band to top the Billboard Hot 100 chart with their blockbuster tune “Dynamite,” featuring lyrics penned in English. “Life is sweet as honey, yeah, the beat is cha-ching like money,” chant the seven-boy ensemble in a rap-like staccato. The rainbow-coiffed fellas scored another smash when their management company, Bit Hit Entertainment of South Korea, went public on Oct. 15. But the act could have been a bigger monster, and loads more South Korean won would be cha-chinging if BHE hadn’t struck the wrong note by underpricing its IPO.
According to news stories—the offering’s prospectus isn’t easily available in English—BHE presold around one-fifth of its shares to institutional investors and its legions of fans at the equivalent of $118. That underwriting, led by J.P. Morgan and two Korean banks, raised $840 million in cash. The shares looked like such a bargain—and maybe got the star treatment because BTS is so adored—that the offering was reportedly 1,100 times oversubscribed by major funds, while the public, led by its enraptured fans, got just one share for every 600 they applied for.
As usual, when shares opened for trading on the Seoul stock exchange, the throngs who wanted shares and couldn’t get them jumped in en masse, doubling the price to $236 at the opening. By the close, the stock had cooled a bit to $225, still good for a 91% one-day gain. BHE finished its first day as public company with a market cap of $7.5 billion.
Sounds like the IPO version of going double-platinum. But if BHE had managed to get full price for the 7.1 million shares sold in the IPO, it would have garnered not $840 million, but $1.6 billion. So BTS’s owners left roughly $760 million on the table.
That’s s big number. According to a database assembled by Jay Ritter of the University of Florida, the nation’s leading academic expert on IPOs, that phantom $760 million would rank among the two dozen highest amounts forgone in all debuts on U.S. exchanges over the past several decades. For the first half of 2020, BHE posted EBIT of around $43 million and held $172 million in cash. So collecting the extra $760 million would have multiplied its cash holdings over four times. If BHE had received full price as measured by the close on Oct. 15, it could have sold 11% instead of 21% of its shares. The founders and other backers would still be holding the extra 10% that they surrendered via underpricing.
Those owners include the seven teen idols who conquer the world’s stages as BTS. According to published reports, they hold 68,385 shares each, or 479,000 in total, for around 14% of BHE. On the second day of trading, BHE shares fell 22%, cutting its valuation to $5.85 billion. Hence, the group that reportedly accounts for over 80% of BHE’s revenues own stock worth just over $800 million. Once again, sounds great. But if BHE had gotten every won for the IPO shares it sold, the BTS management outfit would have $760 more in its cash coffers, and hence a valuation the same amount, or 13% higher. Each of the seven rock stars would be $15 million richer.
In their hit “Cypher Pt.3: Killer,” the boys mock rap singers who keep doing the same old thing, grousing, “They all still rap the same way like this,” and that “if you want to be a piece, make it original.”
BTS are originals, to be sure, but they joined the Wall Street chorus and sang the same old, tired tune on their IPO.
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