Stock Deals Moving the Needle on Valuations

When Fidelity Investments marked up its SpaceX stake by 15% last fall, while marking down many other private tech stocks, its reasoning was shrouded in mystery. It now appears the upgrade was due to SpaceX’s rising valuation in the secondary market, where investors can buy shares from employees and other shareholders.

Recent securities filings show that in October, Fidelity bought more than $85 million in SpaceX common stock at a price that would value the company at around $13.8 billion, up from $12 billion in early 2015. As new common stock is not typically issued as part of a fundraising round, Fidelity likely bought the shares from existing common stockholders, such as employees.

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Citing a DraftKings transaction on Dec. 22, the day it issued convertible debt, the funds marked down shares they held in DraftKings by 47%-74%, according to the fundraising round in which the shares were issued. The markdowns suggest the conversion price of the loan is expected to be lower than the company’s last valuation, or that dilution resulting from the loan’s terms is expected to lower the value of stock by those amounts.

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Joe Lonsdale
Joe Lonsdale
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It’s possible that the frequency of secondary offerings large enough to shift the perceived value of a company may be slowing down. Companies may be hesitant about pricing a tender offer with valuations coming down