Green Dot Raises $164 Million for Owners in IPO as Investors Pay a Premium

Green Dot Corp., the largest U.S. provider of reloadable prepaid debit cards, raised $164 million for its owners after convincing buyers to pay more than the forecast price range in its initial public offering.

Green Dot’s management team and stakeholders sold 4.56 million shares at $36 each yesterday, Bloomberg data showed. The Monrovia, California-based company had initially offered 3.85 million shares for $32 to $35 before increasing the size of the offering, its filings showed. Based on the original terms, the deal would have generated instant profits of 801 percent for its owners, which paid an average $3.72 per share. Green Dot’s shareholders include Wal-Mart Stores Inc. and Sequoia Capital.

Investors paid a premium to own Green Dot, which has doubled its earnings every year since 2006, even as 38 companies postponed or withdrew their IPOs in the U.S. this year. At the original midpoint offer price, Green Dot was valued at 27 times 2010 profits, more than competitors from Visa Inc. to MoneyGram International Inc. and Higher One Holdings Inc.

“It’s the unique deal where perhaps there isn’t a public equity alternative or a high-profile deal investors are comfortable with that will likely succeed,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. “Given the level of uncertainty right now and the choppiness, the average IPO is going to be met with a fair degree of concern or skepticism.”

JPMorgan Chase & Co. and Morgan Stanley of New York led the sale, while Green Dot turned to Fenwick & West LLP in Mountain View, California, for legal advice.

Winners and Losers

Ameresco Inc., the Framingham, Massachusetts-based contractor that helps companies improve energy efficiency, also sold shares yesterday, raising 38 percent less than it sought.

The company sold $87 million of shares at $10 each after buyers rejected an offer of as much as $16 a share, according to its regulatory filing and Bloomberg data. Bank of America Corp. of Charlotte, North Carolina, led the sale.

Green Dot sought to tap investor demand in one of the fastest growing segments of the U.S. payments market. The industry, which collects fees from consumers when they buy and use prepaid cards, has gained customers as banks tightened lending standards.

Annual purchases with prepaid cards, which are used by consumers that don’t qualify for credit cards or bank accounts, are estimated to reach $200 billion by 2013, a 31 percent increase from 2008, according to the Nilson Report, an industry newsletter based in Carpinteria, California.

Existing Owners

The owners sold all the shares in the IPO, according to the company’s statement. Green Dot’s directors and executive officers, including Chief Executive Officer Steven Streit, intended to unload 1.59 million Class A shares.

Wal-Mart, which didn’t plan on selling in the IPO, acquired its stake in May as part of a sales agreement that made Green Dot the exclusive provider of reloadable prepaid debit cards sold by the retailer, according the company’s filing with the Securities and Exchange Commission prior to the IPO.

The Bentonville, Arkansas-based company’s holdings in Green Dot would be valued at about $80 million, based on the IPO price, data compiled by Bloomberg showed.

Sequoia Capital planned to retain its 12.1 million-share stake through the company’s Class B stock, which entitles the Menlo Park, California-based venture capital firm to 10 votes a share, according to its filing prior to the deal. The IPO would value the investment at about $436 million.

Valuation Premium

Wal-Mart spokesman Greg Rossiter declined to comment before the pricing, as did Mark Dempster, a spokesman for Sequoia.

The average price of $3.72 each that Green Dot’s existing owners paid for their shares assumes the exercise of all stock options and warrants, the company’s pre-IPO filing showed.

Green Dot more than doubled its income in its last fiscal year, posted a 40 percent increase in revenue and has no long- term debt, its filing showed.

At the original midpoint price of $33.50 a share, Green Dot is valued at 27 times earnings, based on its first-quarter profit over a full year, its SEC filing and Bloomberg data show.

That’s higher than the publicly traded companies Green Dot cites as potential rivals. San Francisco-based Visa, the world’s largest payments network, trades at about 18.6 times its estimated 2010 earnings. MoneyGram in Minneapolis and Englewood, Colorado-based Western Union Co., two cash-transfer companies, are valued at less than 12 times.

Green Dot has an advantage among equity investors because most of its direct competitors are privately held, according to Francis Gaskins, president of IPOdesktop.com.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Kristen Scholer in New York at kscholer@bloomberg.net.

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