With This Initial Public Offering, There's a Lot to Drink In
Hong Kong Stock Pitch Explains Scene: Jagerbombs Sell Big; Club Hopping Poses a Risk
Updated Jan. 21, 2014 10:58 p.m. ET
When a company is going public, it is important that prospective investors understand its business.
Magnum, a Hong Kong nightclub, is launching an initial public offering on Thursday, and its prospectus explains the following: how a nightclub works, the popularity of the Jagerbomb and that, sometimes, people drink while dancing.
"Clubbing is a popular night time activity which has evolved from the discotheques of the 1970s into a modern form of social gathering with lively music, elaborate lighting and a dance floor, supplemented by both alcoholic and non-alcoholic beverages," the IPO-prospectus overview begins.
And it describes the scene: "The aura and atmosphere of the modern clubbing scene is filled with images of people moving in unison to the beat of synthesised remixed dance and electronic music spun out by a DJ perched upon an elevated stage."
Late on a Saturday night, the line to get into the Magnum Club can sometimes stretch down the block. As busy as Magnum gets, far more people want to buy into the company's IPO than to dance amid its flashing walls and use its diamanté-encrusted toilets.
Investors placed orders for over 3,000 times the number of shares available in the HK$126 million ($16 million) IPO, making it one of the hottest stock offerings in the city's history. The prospective buyers are betting that the stock of the nightclub chain will skyrocket when it starts trading on Thursday.
Inside Magnum's IPOThe prospectus discusses Jägerbombs and more.
As with any coveted IPO, brokers give their best customers the first crack at the shares so they can earn quick profits if the stock pops when trading starts. In Hong Kong, that would include an army of mom and pop stock traders, many of whom spend their days hanging around brokerage offices and some who have likely gone to bed before Magnum gets hopping.
"Lots of my clients want to get their hands on Magnum's shares," said Arthur Lui, senior sales manager at Prudential Brokerage.
Peter Wong, 38 years old, works at a brokerage and visits the Magnum club twice a week. "I would actually be interested in the IPO, but it's very hard to get into," he said as he poured from a HK$5000 ($645) bottle of Belvedere vodka Saturday night at Magnum.
But he wouldn't stay for the long haul. "I would dump the shares quickly," Mr. Wong said. One reason: "People are fickle and will just move on to whatever the hottest new club is."
The prospectus acknowledges that patrons might not hang around all night. "There has been a trend of 'club-hopping' developing in Hong Kong in recent years which means customers have the tendency to visit multiple clubs in one night," the document continues. "Customers may choose a Club based on their mood on a particular evening."
The IPO is tiny by most standards. The club's owner, Magnum Entertainment Group Holdings Ltd., runs three nightclubs within blocks of one another in Lan Kwai Fong, a densely packed, occasionally rowdy neighborhood of bars and restaurants just up the hill from Central, Hong Kong's main business district.
Magnum tries to differentiate its three clubs: Magnum, Beijing Club and Billion Club. The Billion Club boasts life-size bronze bulls on its outdoor terrace and Magnum has a crystal-studded DJ booth. Billion and Magnum have diamanté-decorated toilets. Proceeds raised from the IPO will go to opening another club, Zentral, this year.
The nightclub company and its bankers and lawyers wouldn't talk ahead of the IPO.
Magnum topped the record set by Milan Station Holdings Ltd. 1150.HK -13.64% 's IPO in 2011, when investors placed orders for more than 2,000 times the number of shares available. Milan Station occupies a unique niche in brand-obsessed Hong Kong, selling secondhand designer handbags for prices ranging from a few hundred to a few thousand dollars. Hong Kong's individual investors typically flock to small IPOs like these, looking to make a quick buck by selling the shares once the company starts trading.
Magnum makes most of its money selling drinks, "generally known as alcoholic beverage served by glass and prepared by bartenders mixing different alcohol and ingredients," according to the prospectus.
The drinking habits of Magnum's patrons have changed recently. According to the IPO prospectus, Magnum's clients have widely divergent and rapidly changing tastes. The club's highest-grossing drink is Moët & Chandon Magnum Champagne.
But the most popular is the Jagerbomb, typically defined as a shot of Jagermeister—a German liqueur made from 56 herbs, roots and spices that tastes heavily of anise—dropped into a glass of beer or energy drink. The Jagerbomb overtook a Smirnoff vodka that was the most popular drink for the previous three fiscal years, according to the prospectus.
Magnum's IPO is getting an unlikely boost. While Hong Kong residents aren't known to be big drinkers, the prospectus gives credit for the company's growth to a 50% surge in expatriate professionals in Hong Kong after the financial crisis.
"It is believed that this leads the Hong Kong alcohol consumption and night entertainment scene closer to the consumption patterns observed in western countries," the document says.