Tag Archives: IPO

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Nasdaq Bets on Blank-Check Co. IPOs To Boost Listings; SPACs are Sizzling

Competition for listings is a contact sport in the world of major stock exchanges as evidenced by the assortment of US bourses vying to increase market share in exchange-traded fund (ETFs), which represent nearly 2000 securities or more than half of all equities listed on major US stock exchanges.  While the NYSE has long been the place-to-list for issuers of ETFs, Nasdaq has proven to have sharp elbows in not only soliciting ETF issuers (with BATS taking a distant third), Nasdaq now has another card up its sleeve-the exchange operator is aiming at another listing product known as blank-check companies and is aggressively biting at the heels of Intercontinental Exchange Inc.’s NYSE, which has carved out a niche in the listing of these companies, more formally known as Special Purpose Acquisition Companies aka SPACs ™. In an effort to grab market share in this product away from NYSE and boost IPO listings (and hence more fees from Issuers and more revenue from distributing market data) Nasdaq recently filed proposed new rule changes with the SEC that will make it easier for SPACs ™ to list on that platform.

According to reporting by Alexander Osipovich of the WSJ, 22 blank-check companies have floated IPOs so far this year, raising nearly $7bil.

Special Purpose Acquisition Vehicles are shell companies that raise funds via a public offering whereby the proceeds are managed by a pre-selected team of industry-specific executives who receive an equity stake in the shell and are charged with acquiring an existing private company or in some cases, several private companies and roll those companies into the existing publicly-traded entity. In the event an acquisition cannot be identified and approved by an overwhelming majority of the shareholders within [typically] 24 months of the IPO, 95% of the funds raised are returned to the shareholders.

The investment vehicle construct was first created in the 1970’s, but soon fell out favor after regulators uncovered widespread abuse by operators of  blank check company managers, which led to multiple cases of securities fraud charges against many different firms.  The blank check model was later refined in the early 1990’s by GKN Securities, whose principals created a much tighter construct and trademarked the SPAC™ acronym. GKN successor firm boutique investment bank Early Bird Capital since carried the torch of its predecessor; during the past ten years, Early Bird has underwritten and/or co-managed nearly 75 SPAC™ IPOs that have raised over $4bil.

Early Bird’s early success has not gone unnoticed by leading Wall Street firms; 6-pack investment banks Goldman Sachs, Merrill Lynch, and Deutsche Bank among others have crowded into the space that Early Bird Capital forged. In 2017 alone, SPACs™ have raised nearly $4bil for an assortment of acquisition-minded firms.

According to Paul Azous, CEO of Prospectus.com, a consultancy that assists companies throughout the course of preparing investor offering documentation and via a captive network of securities attorneys, the firm also advises companies seeking to list on stock exchanges, “The blank-check concept is in vogue once again, and we’re working with at least two clients who have targeted specific industries that are seemingly ripe for roll-up.” Added Azous, “With Nasdaq easing the listing burdens, strategy of creating a public shell that can with reasonable ease, roll a private company into that publicly-listed entity should provide a good shot-in-the-arm to IPO activity, which has experienced fits and starts in each of the last several years.”

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BATS Takes 2nd Stab at IPO

The second time is hoping to be a charm for exchange operator BATS Global Markets as it announced a 2nd stab at an IPO, which will be led by Morgan Stanley and Citi and enable an exit for investors that include BAML and Knight Capital.

Bats Global Markets announced the launch of its initial public offering Monday, with a price per share expected to be between $17 and $19. The offering, which could value the company as high as $1.8 billion, comes as the U.S. IPO market has seen its slowest start in seven years.

The IPO has been widely anticipated in part because market observers have been looking for activity in this year’s slow IPO market. Just nine companies launched IPOs in the U.S. in the first quarter of the year, the lowest number in a quarter since 2009, according to data from Dealogic.

The valuation is more than double the size of Bats Global Markets’ attempted IPO in 2012. That effort, which was halted due to a technical glitch shortly after shares started trading, valued the company at around $760 million, according to Bloomberg.

The company has grown significantly since its last IPO attempt. In January 2014 it acquired Direct Edge Holdings LLC, including the two exchanges EDGX and EDGA. In March of last year it acquired Hotspot FX Holdings, the operator or an electronic FX trading platform. Then last September, Bats expanded its Hotspot acquisition by launching a Bats Hotspot platform in London. Last November the company launched the EDGX Options trading platform. It has also significantly grown its exchange traded product (ETP) trading in the past few years.

In its prospectus the company said it is the second largest exchange operator in the U.S. by market share (after the New York Stock Exchange) with a 21.1 share of the overall U.S. equity market as of Dec. 31, 2015. It is also the largest exchange operator of exchange traded funds (ETFs) and other ETPs by market share with a 22.4 percent share of ETP trading last year. The company also had a 9.6 percent share of the U.S. equity options market last year. In Europe, its Bats Europe was the largest European exchange operator as measured by notional value traded as of Dec. 31 of last year.

The prospectus listed several potential growth strategies for the company, including increasing penetration in U.S. options with new products and services, expanding its global FX platform into other currency instruments, and building strength in U.S. equities by leveraging its position in ETPs to expand listings. The company also said it aims to fully monetize the value of its market data and connectivity.

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What’s Next: ETFs For Crowdfunding Industry?

This post was written by Pete Hoegler, Washington DC-based Social Media Savant for The JLC Group. 

Three years after the JOBS Act was passed, it seems that Washington is back for more–a curtain call if you will–making it easier for small ventures to raise capital.

The House Financial Services Committee in early June floated a draft bill that would allow the creation of “venture exchanges” tailored to the needs of small companies looking to raise money. In many ways, the success of the JOBS Act hinges upon the creation of such markets. A healthy secondary market created liquidity that is critical to building investor confidence and creating a robust alternative to the global markets that today are dominated by enormous corporations.

The new proposed “venture exchange” laws are aimed at increasing access to early stage investors in private startups and small businesses (some of which could be JOBS Act enabled investors), as a lack of liquidity was a concern voiced by some surrounding the new laws for equity crowdfunding with non-accredited investors.

Investors in technology startups, for example, are likely to have to hold their position in any one investment for an average of 7 years. Creating opportunities for selling private stock in a start-up investment sooner through venture exchanges has the potential to reduce some of the early stage investment risks.

Where or How is there a link between Crowdfunding and Exchange-Traded Funds? Well, those following the creative finance wizards from the world of exchange-traded products can speculate the next  innovation will be ETFs comprised of non-public companies that were funded via crowdfunding platforms..and those companies will be labeled “pre-emerging start-ups” and there will be ETFs for each category of ‘project.’

While the underlying components might not necessarily be easily-traded by the universe of market-makers who profit by arbitraging the cash index vs. the underlying constituents, the advent of ETMFs, a structure that Eaton Vance hopes to bring to market and is based on a “non-transparent” construct (meaning the investor has no idea what the underlying constituents are), Crowdfunding ETFs could create markets that allow early investors who invested via equity crowdfunding to hedge their bets far before any kind of liquidity event like a public offering (IPO) might take place, spelling an opportunity for liquidity for those early investors.  Just like the current ETF landscape, these crowd-funding indexes would be themed according to industry sector and/or product categories.

OK, some of the wonks who are reading that last tongue-in-cheek idea might be rolling their eyes. That said, given the creative juices that flow from the capital markets, we’re willing to bet that at least one of the current innovators in the ETF world grabs on to this idea and such products will be introduced within the next 18-24 months. Oh, it was our idea…

The number of IPOs has gone from an average of 311 from 1980-2000 down to an average of 99 IPOs each year from 2001-2011 so opening up other alternatives for liquidity will de-risk the growing number of startup investments happening online.

This is yet another step towards reforming our capital markets. The first step was to enable access, and was addressed by Titles II, III & IV of the JOBS Act. So regardless of your opinion on this matter, the summer is shaping up to be an interesting time for equity crowdfunding investors, accredited and non-accredited alike.

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Twitter’s Weak Q1 Jolts Social ETFs

MarketsMuse blog update profiles the disappointing Q1 for Twitter and the impact it is having on social media ETFs such as Renaissance IPO ETF (IPO), Global X Social Media Index ETF(SOCL) and ARK Web x.0 ETF (ARKW). This MarketsMuse update is courtesy of Zacks Equity Research and their article, “Twitter Tweets a Weak Q1 & Soft View, ETFs in Focus“, with an excerpt below. 

On April 28, Twitter (TWTR) came up with a weak Q1 and a disappointing guidance. The social networking site then saw a freefall in its share price as it failed to live up to many investors’ expectations.


Q1 in Detail

The company’s first-quarter 2015 non-GAAP loss per share (including the stock-based compensation expense) of 20 cents was a penny ahead of the Zacks Consensus Estimate. Excluding the stock-based compensation expense, the company earned 7 cents per share on a pro forma basis.

Revenues of $436 million in the quarter fell shy of the Zacks Consensus Estimate of $455 million. ‘A lower-than-expected contribution from newer direct response marketing products’ was held responsible for lower-than-expected revenues. However, revenues grew about 74% year over year.

Market Impact

This subdued performance dampened investors’ mood as the stock was severely beaten down in recent trading sessions. Following the earnings leak on April 28, about 40 minutes ahead of the closing bell, Twitter shares saw a landslide, plunging over 18% for the key trading session of April 28 on about fourth times the regular volume.

Shares slid about 8.9% on April 29. However, after such a massive sell-off for consecutive two days, Twitter stock recouped 0.94% after hours. Year to date, the stock is still up 8.3%.

Twitter does not have a sizable exposure in the overall ETF world with only three ETFs – Renaissance IPO ETF (IPO), Global X Social Media Index ETF(SOCL) and ARK Web x.0 ETF ((ARKW – ETF report)) – having major exposure of 8.17%, 3.66% and 3.20% respectively, at present. Such a huge fall in one of the major components should impact these ETFs.  Below, we have discussed these three funds in detail:

To continue reading about Twitter’s disappoint Q1’s impact on ETFs, click here

Want GoPro? Go to These ETFs..

marketwatchCourtesy of Benzinga via MarketWatch

The hotly-anticipated initial public offering of GoPro GPRO +8.52% this week is one of the largest consumer electronics debuts of the decade.

Shares surged more than 30 percent on Thursday from its IPO opening price of $24 per share, as the company raised $427 million in cash.

The initial success of GoPro may soon pave the way for entry into a number of exchange-traded funds in the near future as well.

The most likely ETF to get the first shot at adding this high definition video maker is the Renaissance IPO ETF IPO +0.09% . This fund allows new publicly-traded companies to be added to its index on the fifth day of trading, and subsequently removes any stocks that have more than two years of history.  Continue reading

ETF $IPO-Knight Flames Irrational Exuberance With Irrational Pricing

indexuniverseBelow excerpt courtesy of Oct 24 IndexUniverse column re: The Renaissance IPO ETF, the newest entrance to the ETF market place, and tracks a market-cap-weighted index of recent US-listed IPOs. The fund acquires issues within 90 days or sooner after IPO and sells after 2 years.

“..The reason it (IPO) traded to a premium, most likely, is that the sole AP for the fund, Knight Capital [aka KCG] was caught off guard. The underlying stocks are plenty liquid, so there’s no reason to think Knight couldn’t make more shares, and obviously, with $31 million now in the fund, Knight indeed made more shares in a hurry. So the premium present in that first day’s trading was entirely irrational, and predictably collapsed.  To anyone who bought at that irrational price, all I can offer is my condolences. And perhaps a reminder that, in the end, fair value always wins. ..” Dave Nadig, IndexUniverse

Since the 2009 inception of the index IPO tracks—the Renaissance IPO Index—it’s returned an average annual return of 19.09 percent, just a touch over the Russell 3000’s return of 18.97 percent. Add in the effect of a 60 basis point management fee and it’s easy to be skeptical about whether the long-term returns will really play out for investors.

But that cautionary note seemed to be lost on the markets when IPO launched. In the first day of trading, IPO traded more than 800,000 shares. That’s a big day for a new niche ETF.

Unfortunately, the folks who were trading during that initial feeding frenzy caused an irrational “IPO pop” of their own.

For the entire article from IndexUniverse, please click here.

 

New ETF of IPOs Is Better Than It Sounds: $IPO

barrons  Courtesy of Brendan Conway

A new exchange-traded fund that invests in newly public companies isn’t as speculative at it seems at first glance.

Almost every day, I get word of a shiny new exchange-traded fund for some ephemeral trend or market sliver. So when news of an ETF of initial public offerings crossed my desk—just in time for Twitter’s hotly anticipated IPO next month—I expected more of the same. But the fund turns out to be different from, and an improvement on, the clubby and nontransparent IPO market. Don’t hop on the bandwagon, but for the right sort of risk-taking investor, there could be an untapped opportunity.

It turns out the surest way of investing effectively in newly public companies—as opposed to speculating on a first-day pop in a stock—is making sure the company will still be selling goods and services a few years from now. University of Florida economist Jay Ritter found three decades of outperformance (1980-2011) in IPO stocks with the biggest sales revenues before they go public. If a company sells a lot of products, it’s certainly less likely to be a Pets.com-type disaster. While this may sound obvious, it’s tough to put into practice. Small, newly public companies are tough to research and inherently risky investing propositions. They’re also not represented in the major stock indexes. Continue reading

#IPO Expert Renaissance Capital Launches ETF For…IPOs..

  Courtesy of Tom Lydon

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Renaissance Capital, the Connecticut-based investment behind the Global IPO Plus Aftermarket Fund (IPOSX) mutual fund, will introduce the Renaissance IPO ETF (NYSEArca: IPO) on Wednesday.

The new ETF will be benchmarked to an in-house index, the Renaissance IPO Index, which is designed in conjunction with index provider FTSE.  “The FTSE Renaissance Global IPO Index Series provides total global IPO market coverage and is composed of regional (e.g. Asia Pacific), country-level (e.g. US) and strategic subsets (e.g. ex-US, Emerging Markets, capped and investable versions),” according to the Renaissance web site. 

IPO will compete directly with the First Trust US IPO Index Fund (NYSEArca: FPX), which is seven and a half years old and has $184.7 million in assets under management.  FPX has had another banner year, gaining 31.4%, but there are key differences between it and FPX.

Investors should note how FPX does business because in the case of this ETF, IPO does not necessarily mean brand new stocks. Said another way, a hot IPO set to debut on October 20 could trade for months before being included in FPX’s index. Additionally, FPX is home to plenty of spin-offs and companies that were taken private in private equity buyouts only to go public again a few years later. [Another Market Beating Niche ETF]

For the full story from ETF Trends, please click here

What’s Next?..Options Trading On Facebook (FB)

Options on Facebook (NASDAQ: FB) will be available as early as May 29th. With volatile price action in FB after its IPO, traders will look to options strategies to profit

In the next several months FB is going to face pressure to grow into its current 100 Billion dollar valuation. As a growth stock trading over 100 times earnings, any sign of slower growth in Facebook will cause the stock to plummet quickly.Traders who do not think Facebook can hold its current valuation have a number of options strategies to profit from any fast downside price action.

Depending on implied volatilities of FB options, traders can be either short or long volatility. It is unlikely that FB stock will increase or decrease in value by more than 30% in one year. If options are trading will implied volatilities greater than 30%, traders should be net sellers of options. Selling vertical call spreads, which involves selling call options at strike prices above the current price and buying a call option at strike prices even farther out from the current price. This strategy will be profitable if FB maintains its price or decreases.

Notes WallachBeth Capital’s Randy Sharringhausen, an institutional options market expert, “Even if the company’s fundamentals don’t come close to justifying its IPO price, this is a company that has 450 million customers that visit every day and a corporate treasury flush with enough currency to finance any number of  major acquisition to better monetize its customers.  This should prove to be an interesting name to trade by the hedge fund and risk arb community, as well as the long/short managers.”

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