Liquidnet Holdings Inc hopes its position in the equities trading world will inure its initial public offering from the down drafts investors have shown new offerings.
Liquidnet, a nine-year-old, New York-based venue that institutional investors use to trade tens of thousands of shares at a time, filed its application for an IPO to raise an expected $500 million. It expected to bring the IPO to market during the fourth quarter.
The filing came amid the worst slowdown in the IPO market in five years, with the second quarter seeing only 14 offerings in the United States. One threat to the IPO's success could come from the weak stock performance of the major exchanges.
NYSE Euronext, Nasdaq OMX Group, and CME Group, have seen their shares drop about 40 percent so far in 2008 on worries about their falling market shares and shrinking margins. Compounding the exchanges' woes has been the proliferation of "dark pools," off-exchange venues where trades are executed anonymously created by large broker dealers such as Goldman Sachs & Co and Morgan Stanley, and companies such as Liquidnet.
Liquidnet, an electronic and relatively unregulated trading venue, is also a "dark pool" and hoped that association would help it avoid being lumped in with the exchanges' swooning shares, said one analyst. "Every institutional trader loves Liquidnet, so they will analyze it in detail," said Brad Hintz, an analyst with Sanford C. Bernstein.
The IPO market has shriveled this year. In the second quarter, 25 such deals were pulled. Those that have gone forward have disappointed some investors. Shares in American Capital Agency Corp, which raised $200 million have fallen 14 percent since their debut in May; Hatteras Financial Corp stock has fallen by 10 percent since its April offering.
Matt Samelson, a senior analyst with Boston-based consultancy Aite Group, said, "They (Liquidnet) have been able to hold on to their 2 cents a share commission, despite competition."
According to unaudited financial information, Liquidnet's first-quarter earnings rose 11 percent to $30 million, while revenue increased 38 percent to $107 million from a year earlier.
"They're growing on the top line and on the bottom line, which should make investors receptive," said Scott Sweet, an analyst with IPO Boutique. Investors look for a track record of profitability and a pattern of growth, he added. Still, no company has immunity from the structural changes affecting equities trading industry, analysts say.
"Liquidnet has a wonderfully successful franchise," said Hintz. "But we're in a period of transition in the institutional equities market." When Liquidnet does go public, similar companies will be paying close to attention to gauge whether the market's attitude toward the sector has improved.