- Teeth-straightening company SmileDirectClub had one of the worst market debuts for any IPO this year.
- Nashville, Tennessee-based SmileDirectClub priced shares at $23 last week. Shares were trading hands at $18.40, some 20% below their IPO price, as of Friday afternoon.
- The poor performance has caused some to think that the IPO had been mispriced by SmileDirectClub's lead banker, JPMorgan.
- SmileDirectClub CEO David Katzman held a conversation with JPMorgan CEO Jamie Dimon in recent days to dig into what went wrong with the IPO, according to people familiar with the matter.
It's been a tough couple of weeks for JPMorgan's investment bankers.
Co-working company WeWork slashed its valuation and put on hold its IPO, which the bank was set to lead, after a chilly reception from investors.
And teeth straightening startup SmileDirectClub had one of the worst public market debuts this year. The Nashville, Tennessee-based company priced shares at $23 last week in an IPO led by JPMorgan. The day after the pricing, shares tumbled 27% closing below $17. They were last trading hands at around $18.40 as of Friday afternoon.
SmileDirect Club was the first US IPO since the financial crisis to raise more than $1 billion and price its above range, but fall in its opening trade. That has led some to believe that the IPO had been mispriced by JPMorgan.
The performance was so bad that SmileDirectClub CEO David Katzman held a call with JPMorgan CEO Jamie Dimon to look into exactly what had happened and if the IPO had been mishandled, according to people familiar with the matter. Large deals can sometimes involve phone calls between senior bankers or the CEO and company founders after the deal has priced.
Representatives for JPMorgan and SmileDirectClub declined to comment.
SmileDirectClub's relationship with JPMorgan extends beyond its IPO. The bank also served as placement agent to the company on a $380 million investment from private equity firm Clayton, Dubilier & Rice and venture firms Kleiner Perkins and Spark Capital last October.
There are also more personal ties between Dimon and the company, and the CEO has known Katzman for years.
JPMorgan has made a commitment to invest $150 million to boost growth in Detroit, which in part stemmed from a relatonship with Quicken Loans founder and billionaire Dan Gilbert.
Gilbert is Katzman's first cousin and former business partner.
JPMorgan angling for more IPO roles
SmileDirectClub's IPO marks a sharp outlier for what's been an otherwise strong market for digital health companies to go public this year.
Diabetes-technology company Livongo surged in its first day of trading, closing up 36%. Gene-sequencing technology company 10x Genomics, which JPMorgan also led, made its debut on the public market last week, pricing above the range and closing up 35%.
SmileDirectClub chief financial officer Kyle Wailes told Business Insider that during the company's IPO roadshow, investors were positive about the company's growth prospects, as well as its margins.
To be sure, it's unclear if the SmileDirectClub deal will have any impact on JPMorgan's ability to win future IPO business.
The bank has been angling for more IPO work by trying to unlock the duopoly that Goldman Sachs and Morgan Stanley have on taking the hottest companies public. The bank was lead left on the March offering for ride-sharing startup Lyft, and ranked as the top underwriter for tech IPOs this year by number of deals through Sept. 10, according to Dealogic.
JPMorgan is reportedly close to clinching a coveted lead role in the public float of Saudi Aramco, expected to make the Arabian oil producer the most valuable company of all time.
Bankers must walk a fine line when pricing IPOs. If the company's shares pop too much on the first day of trading, they face criticism for pricing the deal too low. Similarly, a first day stock drop can be seen as bankers pricing a deal too aggressively.
SmileDirectClub makes straightening teeth more affordable by cutting out the steps of going in person to a dentist or an orthodontist to get braces or other alignments. The company sells clear aligners, an alternative to what you might get from an orthodontist. While it typically costs $3,000 to $7,000 to get traditional braces or Invisalign-brand aligners, SmileDirectClub goes for a fraction of that - you can either pay $1,895 up front or $2,290 spread out over two years.
SmileDirectClub's net loss widened from $33.8 million in the first half of 2018 to $52.9 million in 2018. The company increased its customer count from 22,000 in 2016 to about 246,000 in the first half of this year.
