Merqueo Holdings Starts U.S. IPO Plan (Pending:MERQ)

A Quick Take On Merqueo Holdings

Merqueo Holdings (MERQ) has filed to raise an undisclosed amount in an IPO of its ordinary shares, according to an F-1 registration statement.

The firm provides online grocery ordering and delivery in Colombia and Brazil.

It appears that MERQ is using a very high amount of cash as its business struggles.

I’ll provide a final opinion when we learn more IPO details.

Merqueo Overview

Bogota, Colombia-based Merqueo Holdings was founded to develop a vertically integrated grocery sourcing, ordering and delivery service in Latin America.

Management is headed by Chief Executive Officer Felipe Ossa, who has been with the firm since 2021 and was previously Managing Director at Domicilios.com, the Colombian operating entity for Delivery Hero.

The company’s primary offerings include:

• User mobile apps

• Fulfillment center technologies

• Last-mile delivery app

• Customer service & live operations platforms

As of September 30, 2022, Merqueo has booked fair market value investment of $82.6 million from investors including Portland Private Equity, Fuel Venture Capital, MGM, BLAO and others.

Merqueo – Customer Acquisition

The firm markets its service online and through word of mouth.

The company has the capacity to ‘deliver up to 45 orders in a single route of more than 3 hours.’

Selling expenses as a percentage of total revenue have risen markedly as revenues have decreased year-over-year in the most recent period, as the figures below indicate:

Selling	Expenses vs. Revenue
Period	Percentage
Nine Mos. Ended September 30, 2022	53.6%
2021	38.8%
2020	30.7%

Click to enlarge

(Source – SEC)

The Selling efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling spend, fell to negative (0.7x) in the most recent reporting period, as shown in the table below:

Selling	Efficiency Rate
Period	Multiple
Nine Mos. Ended September 30, 2022	-0.7
2021	0.2

Click to enlarge

(Source – SEC)

Management did not disclose any customer or revenue retention rates.

Merqueo’s Market & Competition

According to a 2022 market research report by imarc Group, the online grocery market in Latin America was an estimated $3.0 billion in 2022 and is forecast to reach $6.4 billion by 2028.

This represents a forecast CAGR of 13.2% from 2023 to 2028.

The main drivers for this expected growth are rising internet and mobile phone penetration, the growth in influence from social media platforms and the outbreak of the COVID-19 virus.

Also, the market is broken down into three categories of companies: pure marketplace, hybrid marketplace and others.

Currently, the hybrid marketplace model retains a majority of the total market share.

Major competitive or other industry participants include premium and discount grocery retail chains, independent supermarkets, corner stores and informal local markets.

Merqueo Holdings Financial Performance

The company’s recent financial results can be summarized as follows:

• Falling topline revenue in the most recent reporting period

• Reduced gross profit and gross margin

• Increasing operating losses

• Higher cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Nine Mos. Ended September 30, 2022	$ 22,837,664	-27.6%
2021	$ 43,176,200	8.8%
2020	$ 39,688,869
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Nine Mos. Ended September 30, 2022	$ 429,234	-84.2%
2021	$ 2,459,272	-61.1%
2020	$ 6,318,775
Gross Margin
Period	Gross Margin
Nine Mos. Ended September 30, 2022	1.88%
2021	5.70%
2020	15.92%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Nine Mos. Ended September 30, 2022	$ (26,963,402)	-118.1%
2021	$ (24,879,429)	-57.6%
2020	$ (10,612,044)	-26.7%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Nine Mos. Ended September 30, 2022	$ (34,961,748)	-153.1%
2021	$ (34,428,066)	-150.8%
2020	$ (12,278,016)	-53.8%
Cash Flow From Operations
Period	Cash Flow From Operations
Nine Mos. Ended September 30, 2022	$ (33,537,687)
2021	$ (30,175,772)
2020	$ (6,017,204)
(Glossary Of Terms)

Click to enlarge

(Source – SEC)

As of September 30, 2022, Merqueo had $4.1 million in cash and $33.6 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2022, was negative ($42.6 million).

Merqueo Holdings IPO Details

Merqueo intends to raise an undisclosed amount in gross proceeds from an IPO of its ordinary shares.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds for our operating expenses and capital expenditures and other general corporate purposes, including the costs associated with being a public company.

(Source – SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management did not characterize its legal exposure to claims, if any.

The listed bookrunner of the IPO is Aegis Capital Corp.

Commentary About Merqueo’s IPO

MERQ is seeking U.S. public capital market investment to fund its general operating expenses.

The company’s financials have produced dropping topline revenue in the most recent reporting period, lowered gross profit and gross margin, higher operating losses and growing cash used in operations.

Free cash flow for the twelve months ended September 30, 2022, was a whopping negative ($42.6 million).

Selling expenses as a percentage of total revenue have risen as revenue has dropped; its Selling efficiency multiple fell to negative (0.7x) in the most recent reporting period.

The firm currently plans to pay no dividends and to retain any future earnings to reinvest back into its growth initiatives.

MERQ’s trailing twelve-month CapEx Ratio indicates it has spent lightly on capital expenditures as a percentage of its operating cash use.

The market opportunity for online grocery services in Latin America is somewhat large and expected to grow at a reasonably robust rate of growth in the coming years.

Aegis Capital Corp. is the sole underwriter and the IPO led by the firm over the last 12-month period generated a return of negative (52.8%) since its IPO. This is a bottom-tier performance for all major underwriters during the period.

Risks to the company’s outlook as a public company include a history of LatAm currency devaluation against the US dollar, reducing any earnings the company may have in the future.

It appears that MERQ is using a very high amount of cash as its business struggles.

I’ll provide a final opinion when we learn more IPO details.

Expected IPO Pricing Date: To be announced.