This morning there was a substantial IPO filing, that of Interactive Brokers. It has decided to take the proposed NASDAQ ticker “IBKR.”
This is one that has been thought of as one of the great ones to come to market whenever it comes, and now they have grown a core mass of fairly active retail trading accounts. They are a low cost trading provider for online trading of options, futures, forex, stocks, and bonds on 60 markets worldwide. Institutional Investor ranked IB the 16th largest U.S. securities firm in 2005.
Their distinct advantage to other brokerage firms is the instant access that traders can get to the global markets. Their systems are deemed a bit behind other platforms on a historical basis, but they have supposedly taken numerous steps and have gone through numerous upgrades to rectify this. The prospectus says it has grown to approximately 77,000 institutional and individual brokerage customers.
It has listed W.R. Hambrecht and E*Trade as the underwriters for the offering, so this may be part of the OpenIPO(R) format we have recently noted.
The company claims to process approximately 500,000 trades per day and has about 500 employees. During 2005 and for the nine months ended September 30, 2006, it generated pretax income in each period at a rate of more than $1 million per employee.
Here is the latest metric: According to data compiled by the Futures Industry Association (FIA) based on data received from exchanges worldwide, during the nine months ended September 30, 2006, it says it accounted for approximately 16.0% of exchange-listed equity options volume traded worldwide and approximately 18.8% of exchange-listed equity options volume traded on those markets they actively trade on. It also said data pointed it as the number one or number two liquidity provider on each of the three largest U.S. options exchanges (the Chicago Board Options Exchange, the International Securities Exchange and the Philadelphia Stock Exchange) during the nine months ended September 30, 2006, according to rankings provided by those exchanges. As a market maker, it says it provids continuous bid and offer quotations on approximately 324,000 securities and futures products listed on electronic exchanges around the world.
It has also made inroads as a smaller institutional player and acts as a prime broker on top of its regular trading for retail. While its trades are nearly 500,000 per day it claims 196,000 daily average revenue trades (DART’s).
REVENUE: For the year ended December 31, 2005, IB’s total revenues were approximately $1.1 billion, as compared to approximately $621.7 million for the year ended December 31, 2004. For the nine months ended September 30, 2006, its total revenues were approximately $1.3 billion, as compared to approximately $772.1 million for the nine months ended September 30, 2005. INCOME: income before income taxes was approximately $569.3 million for the year ended December 31, 2005 and approximately $599.9 million for the nine months ended September 30, 2006, as compared to approximately $290.0 million for the year ended December 31, 2004 and approximately $406.9 million for the nine months ended September 30, 2005. It listed market making activities represented 79% of total revenues for the year ended December 31, 2005 and 78% of total revenues for the nine months ended September 30, 2006. FINANCIALS: As of September 30, 2006, IB had equity capital of approximately $2.6 billion and our capital base grew organically at a CAGR of approximately 24% from December 2000 to September 2006. As of September 30, 2006, IB held $32.2 billion in total assets, approximately $32.0 billion, or 99%, of which were highly liquid and readily convertible to cash. As of September 30, 2006, IB’s long-term debt-to-equity ratio was 11%.
This deal is not without risk, as the filing is coming at a time when the DJIA is within sniffing distance of record highs. It has also already seen a huge growth phase and this is one of the last of the decent-sized brokerage firms with easy brand recognition that has been holding out as a private company. That being said, you can bet that this deal will have a lot of interest going in. This OpenIPO(R) format is one that often gets a cold shoulder by the street, but we noted recently how much money was left on the table by NYMEX (NMX) on its IPO and that it sure makes a better argument for firms to use the OpenIPO(R) format.
We will be keeping up on this IPO as the financial terms become available.
Jon C. Ogg
November 27, 2006
More information can be found in the prospectus at the link below:
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