Three Things (10/11)

“Economies of scale are a good thing. If we didn't have them, we'd still be living in tents and eating buffalo." – Jamie Dimon, CEO of JP Morgan Chase

Energy buyout

According to reports from the Wall Street Journal, Exxon is closing in on a deal to purchase Pioneer Natural Resources, in a blockbuster takeover bid. The deal is rumored to be valued at $60 billion and would be the company’s largest deal since its megamerger with Mobil in 1999.  The acquisition would give Exxon a dominant position in the oil-rich Permian Basin of West Texas and New Mexico, a region the oil giant has said is integral to its growth plans.

The takeover (and the cash on hand) can be attributed to Exxon’s record profits in 2022. The deal could be revealing of future consolidation among shale companies moving forward: once rapidly growing businesses have shifted to become more mature enterprises, often underpinned by fiscal restraint and burdensome shareholder dividends. A buyout could allow these shale companies to leverage stronger balance sheets to literally and figuratively, hit the gas on growth. 

Floating to New York

Footwear maker Birkenstock is set to debut trading in New York on Wednesday. The German sandal maker aims to raise as much as $1.5 billion at a market valuation of nearly $10 billion. At $1.5 billion, the Birkenstock IPO would be the largest IPO from the consumer discretionary sector since EV maker Rivian in 2021.

The company has certainly benefited from a trend towards casual fashion that took hold during the pandemic and is a rare brand that young consumers don’t seem to mind sharing with their parents, or even their grandparents. The IPO window appears to be reopened following the recent launches of Arm, Instacart, and Klayvio. Birkenstock is a fundamentally different company than the aforementioned tech giants and the IPO should be a good barometer for investor appetite for consumer discretionary businesses as recessionary fears loom large.

The next frontier

The private equity division within JP Morgan’s asset management arm is launching a private markets fund aimed at retail investors. The firm announced plans to unveil a perpetual fund with quarterly liquidity options and a $25,000 minimum commitment, pitching it as a “democratization of alternatives.” The fund is targeting individual investors with a net worth of at least $2 million.

Individual investors hold roughly 50% of the estimated $275 trillion to $295 trillion of global assets under management, according to industry consulting firm Bain & Co. Private equity firms and alternative investors are itching to gain access to what they believe to be the next frontier: the everyday investor. Success of the fund will likely be predicated on education and distribution, a game that JP Morgan has mastered over the years through DTC and advisor networks. We’ll be following along closely.

As of writing, XOM is a holding in Titan's Flagship strategy. Titan Global Capital Management, Inc. is a banking client of JP Morgan Chase.