Liquidnet Plans to Go Public
July 3, 2008
Liquidnet Holdings, parent of the buy-side block-trading venue, filed a registration statement July 1 with the Securities and Exchange Commission for an initial public offering it expects will raise up to $500 million.
According to New York-based Liquidnet, the number of shares to be offered and the price range for the IPO, which is expected to take place in the fourth quarter, have not yet been determined. Shares will be offered by stockholders including Liquidnet’s senior management and board, according to the filing.
In an e-mail exchange with Securities Industry News, COO Robert Young explained that the IPO will be a secondary offering and that Liquidnet Holdings “will not receive any of the proceeds from the sale of the shares of our Class A common stock by the selling stockholders.” Discounts and commissions will be paid by the sellers to the Liquidnet Inc. subsidiary as an underwriter of the offering, he said. Goldman Sachs and Credit Suisse Securities are joint bookrunners on the transaction.
Liquidnet, which began operations in 2001, has more than 500 members and trades in 29 countries across five continents with offices in London, Toronto, Tokyo, Hong Kong and Sydney. On June 4, the BATS Trading electronic communications network became the 22nd liquidity partner on its H2O dark pool platform, and Liquidnet founder and CEO Seth Merrin recently called for exchanges to allow their retail flow to interact with Liquidnet orders.
As of May 31, Liquidnet’s user community accounts for an estimated $15.9 trillion in equity assets under management, or an average of $30.9 billion each, says the filing. In the first quarter, average daily volume on the platform was 80.8 million shares, up 39 percent from 57.9 million in the same period last year and 11 percent higher than the previous quarter’s 72.7 million.
Despite less-than-ideal economic conditions, “now is really as good a time as any for Liquidnet to file for an IPO,” said Aite Group senior analyst Matt Samelson. “The business driver for Liquidnet is share volume and equity market volume, which is not subject to the same type of downturn in tough economic times as manufactured goods.” Samelson noted that one of the likely drivers behind the offering is a desire to reward the company’s investors and employees who own stock options.
Young acknowledged the difficult market, but said that Liquidnet is “confident that we, along with our underwriters, will have a successful IPO based on our competitive strengths.”
“Liquidnet is expanding rapidly around the world, so an IPO can provide capital for expansion, further development and acquisitions” such as the company’s 2007 purchase of agency brokerage Miletus Trading, said David Easthope, senior analyst at Boston-based Celent. He noted that Asia has been a major focus for Liquidnet, which went live in Japan, Hong Kong and Korea last year. Liquidnet Asia is awaiting regulatory approval to launch in Australia, where alternative trading venues are not yet allowed to operate.
“While the market timing cannot be perfectly predicted due to stock market volatility, Liquidnet has a strong franchise and is well known in the investment community,” Easthope continued. “There are always supply-demand factors in IPOs, and with limited competition, this may actually be a decent time to begin targeting Q4. However, none of this need be set in stone.”
Easthope also noted that “there is a bit of expedience here,” with the company’s backers “looking for a decent time to generate a return on investment via an IPO.” In 2005, Liquidnet sold a $250 million minority stake to private equity firms Summit Partners and Technology Crossover Ventures. Private equity firm TH Lee Putnam Ventures was one of Liquidnet’s original investors when the company was founded in 1999.
