Firmus IPO Flop Raises Data Center Funding Questions

Well, data centers, of course, powering the AI boom. But concerns around high valuations are spooking investors. Last week, firmus grids shelved what would have become one of Australia's biggest IPOs amid anxiety over its targeted $30 billion valuation. In less than 48 hours from, it went from being one of the sector's hottest listing prospects to one of the biggest disasters in recent Australian market history. Sources say the company is now exploring a private funding round and may also consider a US listing. Let's bring in our next guest, who says a successful firm's IPO might have boosted Australia's status as a hub and a computing power. Joining us now is Ron Sharma, who's a head of Australian equities at Tamam Asset Management. Ron, really great to have you with us. So you talked about this being an issue of greed. There's of course a lot of post-mortems being done on exactly what went wrong. Was it a founder issue? Was it the fact that there was, you know, no technical expertise at the top? Was it the valuation or was it just timing? And how many sort of jitters are building in the broader I trade. What's your view in terms of what went wrong here? Yeah. Hi. Good morning. Hi. DM. Look, all of the above, plus much more. Um, obviously, um, you know, I mean, I gotta say that this is probably the worst priced and structured IPO of all time in its history. Maybe. I think there was definitely too much greed and a lot of bad advice given. Um, you know, unfortunately, the, um, the IPO, um, was just grossly overvalued and, you know, for what is essentially a startup. Now, although we are not an investor in 30 and we wasn't planning to invest in it, we did want thermos, uh, to succeed. Um, and we wanted many more thermoses, uh, to potentially lease and do well, because we like the idea of Australia becoming a hub for AI compute infrastructure for the future. We have plenty of space to build data centers and, uh, plenty of energy resources and so on. But I think, um, you know, if you look at thermos a year ago, it raised funds at a $1.5 billion valuation. Three months ago, we did it at $15 billion. And now that we're trying to get it away at $44 billion, when comparable companies around the world is about 200 of these new clouds, and they have significant more revenue in it trading at much lower valuation. So I think it was mostly greed and also the structure, you know, the founders were allowed to essentially cash out 10% through a complex derivative structure. And I think there was a lot of, uh, dilutive mechanisms for the last round given to some of the largest shareholders like coca, Blackstone and Nvidia. So unfortunately, this was just really badly structured and priced. At the same time, two things can be true. But this is still disappointing for Australian capital markets. There's lots of complaints and criticism that this is a market that lacks innovation, that lacks positivity. This was supposed to be the, uh, the sovereign. I hope for Australia. How much of a setback do you think this is? Or is it the ability to look at this as being sort of idiosyncratic, a problematic, uh, PR that didn't work? Yeah. Look, I mean, um, I mean, I think that one of the issues for firms is that it is essentially a startup. And I think that, you know, they were trying to be a big fish in a small pond. They were going to be, I think, the 18th largest ASX company for what is essentially a startup. And so they were always going to get a lot of scrutiny. And I do think that there is demand for, uh, for I exposure on there. And I do think that, you know, other businesses will be scrutinized more heavily. But I think if they are, um, very good, more sort of, uh, mature businesses with more significant revenue and more reasonable valuations, I think they can get away with with the with the raisings and so on. I guess we'll have to see now in the private market how this firm has continued funding quite a large CapEx roll out of its data centres. And so we need to see how that pans out and if it can keep going and raise funds privately and maybe potentially in the future, come back to the market when it's showing a bit more of an execution and a track record of building these data centres, or maybe even look to list in the Nasdaq one benchmark that it's worth looking at for the whole I industries. One of the joint venture partners for firms is day one in Singapore, and they're looking to IPO on the Nasdaq next month at a $20 billion valuation raising 5 billion. So they've got about five times the revenue as firms. And they're looking to raise at a 30% discount to what firms wanted to do in Australia. So that's going to be an interesting sort of benchmark for appetite and demand for these type of new cloud businesses going forward. Arun, you did mention there the next step for firmness, and I've said this themselves, is to go ahead and tap private markets for the capital that they need. There's a lot of competition in that space as well. Can you talk to us? How you see that panning out? How difficult is it going to be to raise the capital that I'd like to raise? And can you see a day down the track where they do have another go at an IPO? Yeah. Well, look for starters there's basically Nvidia will call the shots here. I think if Nvidia continues to fund and help these new clouds and because they're essentially involved in each one of those 200 new clouds around the world that, you know, they provide funding, they obviously sometimes they're an end customer. They provide some of the debt as well for these new clouds to eventually buy their GPUs. And I think there are some large shareholders could chew. And Blackstone, which is providing the debt, they are going to dictate the terms of the next funding round. And they're pretty much in control. I think you will see a lot of the smaller existing shareholders that came before them, they will get, uh, significantly diluted. Uh, but again, I think if if Nvidia really wants to support firms and I do think, like I said, I think firmness is sort of inconsequential in the big scheme of of I know clouds around the world. It's still very a small business with $50 million of revenue. But I think if they want to continue funding then, then they will decide how this is done privately. And so if they can then go on and build some of those large AI factories, um, and show that they can deliver on that, uh, if FY 28 five mil Ebit of full cost, and I think that they can come back to the market at least in a year or maybe two years from now, just to circle back to a point Heidi was making earlier, is this an example of Australia really scuffing its chance at I? Because, you know, Treasurer Jim Chalmers has talked about Australia needing to seize the opportunities here. To what degree was this a missed opportunity. And do you see other opportunities coming along that might be better. Yeah, look, it is a missed opportunity, but I think it's totally 100% of the fault of the company. I think if they had come to the market at a more reasonable valuation of maybe 5 to $10 billion, I think that would have been, uh, sort of less scrutinized and probably that could have got that away. And I think so it was like I said, it was a really badly structured process, uh, letting the founders being able to sell, um, and just the price just, uh, totally overpriced. Um, I think, um, you know, there are a few other companies sort of floating around looking to do it mostly overseas, mostly in Asia, um, and obviously in the US. Uh, and so there's, I think the next couple of months, if there is demand for some of these new clouds to IPO, is that, as I said, more in the US, then I think that will sort of be quite positive for, for I sentiment. Uh, but we haven't really seen a lot of, um, uh, companies trying to come here. New clouds. There is an existing company called megapode, which is listed on the ASX, and they do kind of a similar business of buying GPUs. I compute rentals and they've recently raised quite a bit of money, $1 billion in debt. And they are quite profitable. And they've shown a track record of executing. And so I think there is demand for the right businesses. All right, Ron, thank you so much for your time today. That is Ron Sharma head of Australian equities at Tamam Asset Management. And there is more on air coming up on today's edition of insights, Atlassian CEO Mike Cannon-Brookes joins us exclusively to discuss the company's push into AI and what that shift is going to mean for jobs. We'll also have more on Australia ahead every Tuesday at 10:40 a.m.. If you're watching in Sydney. That's 8:40 a.m. in Hong Kong. More ahead on the Asia trade. This is Bloomberg.