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Tradeweb Markets Begins U.S. IPO Process

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Quick Take

Tradeweb Markets (TW) intends to raise gross proceeds of $100 million from a U.S. IPO, according to an S-1 registration statement.

The firm builds and operates electronic marketplaces for financial products.

TW has produced enviable financial results, has low debt, and is well-positioned to benefit from the increased financialization of markets worldwide.

I’ll provide an update when we learn more details about the IPO.

Company & Technology

New York-based Tradeweb Markets was founded in 1996 to develop and operate electronic marketplaces for credit, rates, money markets as well as equities.

Management is headed by Co-Founder, CEO and Director Lee Olesky, who has been with the firm since 2002 and was previously co-founder and CEO of BrokerTec.

TW provides institutional, wholesale and retail industry players with access to markets, data and analytics, reporting, electronic trading, and straight-through-processing for over 40 products.

The company’s technology-enhanced price discovery, more efficient order execution and trade workflows while allowing for greater scale and reduced risks in client trading operations, allowing the firm to tailor its offerings to specific client needs.

Below is a brief overview video of the company’s workflow:

Source: Tradeweb

According to the company prospectus, TW has a customer base that includes banks and dealers, regional dealers, central banks, hedge funds, global asset managers, insurance companies, proprietary trading firms as well as retail brokerage and financial advisory organizations, spread across 62 countries.

The firm is owned by Refinitiv, a partnership of Blackstone (BX) and Thomson Reuters (TRI).

Customer Acquisition

TW has a direct sales organization that utilizes a team-based approach to acquire new clients, work with them to tailor the company’s offerings to their needs as well as provide product training and support.

Additionally, the firm uses its public website, digital and social media, advertising, earned media, direct marketing, promotional mailing as ways to strengthen its brand awareness and acquire new customers.

General & administrative expenses as a percentage of revenue have dropped as revenue has increased, per the table below:

General & Administrative

Expenses vs. Revenue

Period

Percentage

2018

5.3%

2017

6.7%

Sources: Company registration statement andIPO Edge

Market & Competition

According to a 2018 market research report by IBIS World, the global eTrading software developers market has grown by 4.2% to $10.9 billion in 2018, representing a CAGR of 2.2% between 2013 and 2018.

During the same period, the number of businesses in the industry has grown by 3% to 515 and employees by 3.2%.

Major competitors that provide or are developing eTrading software solutions include:

  • Interactive Brokers (IBKR)
  • Nasdaq (NDAQ)
  • Bloomberg
  • Intercontinental Exchange (ICE)
  • CME Group (CME)
  • Numerous other niche systems

Source: Sentieo

TW management sees its scalable technology, deep client relationships, numerous supported asset classes, geographic reach as well as regulatory expertise as its competitive advantages.

Financial Performance

The firm’s recent financial results can be summarized as follows:

  • Strong growth in topline revenue
  • Even stronger growth in operating profit
  • Increased operating margin
  • Growing EBITDA
  • Increased cash flow from operations

Below are relevant financial metrics derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

2018

$657,578,000

30.4%

2017

$504,448,000

Operating Profit (Loss)

Period

Operating Profit (Loss)

% Variance vs. Prior

2018

$172,269,000

93.4%

2017

$89,092,000

Operating Margin

Period

Operating Margin

2018

26.20%

2017

17.66%

EBITDA

Period

EBITDA

EBITDA Margin

2018

$256,610,000

39.0%

2017

$158,392,000

31.4%

Cash Flow From Operations

Period

Cash Flow From Operations

2018

$277,384,000

2017

$224,580,000

Sources: Company registration statement and IPO Edge

As of December 31, 2018, the company had $310.1 million in cash and $410.6 million in total liabilities. (Unaudited, interim)

Free cash flow during the twelve months ended December 31, 2018, was $262 million.

IPO Details

Tradeweb has filed to raise $100 million in gross proceeds from an IPO of its Class A common stock, not including customary underwriter options.

There will be four classes of stock – Class A and Class C shareholders will be entitled to one vote per share. Class B and Class D shareholders will be entitled to ten votes per share.

Refinitiv will hold all Class B shares and the LLC continuing owners will hold all Class D shares.

Multiple classes of stock are a way for certain shareholders or management to retain voting control even after losing economic control of the company.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

Per the firm’s latest filing, it plans to use the net proceeds from the IPO as follows:

We intend to use the net proceeds to us from this offering to purchase [an as-yet undisclosed amount of] issued and outstanding LLC Interests[…]if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from certain of the Other LLC Owners (and cancel the corresponding shares of Class D common stock), at a purchase price per interest equal to the initial public offering price per share of Class A common stock, less the underwriting discounts and commissions payable thereon.

Management’s presentation of the company roadshow isn’t available yet.

Listed underwriters of the IPO are J.P. Morgan, Citigroup, Goldman Sachs, Morgan Stanley, BofA Merrill Lynch, Barclays, Credit Suisse, Deutsche Bank Securities, UBS Investment Bank, Wells Fargo Securities, Jefferies, and Sandler O’Neill + Partners.

Expected IPO Pricing Date: To be announced.

An enhanced version of this article on my Seeking Alpha Marketplace research service IPO Edge includes my full commentary and opinion on the IPO.

Members of IPO Edge get the latest IPO research, news, and industry analysis. Get started with a free trial!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Ipo Search Results
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