Bats Gets Its Stock Trading, Rebounding From Failed 2012 IPO

Has the Success of Bats Helped High Frequency Trading?
  • Underwriters sold shares for $19 each, raising $253 million
  • Exchange's valuation more than doubled in the past four years

Bats Global Markets Inc. got its shares trading, completing an IPO four years after an error with the exchange operator’s own software foiled a first attempt to go public.

Bats rose 21 percent to $23 at the close on Friday after surging as much as 23 percent earlier in the day. Its underwriters, led by Morgan Stanley and Citigroup Inc., sold 13.3 million shares for $19 each the night before, raising $253 million for shareholders from the initial public offering. Bats didn’t receive any proceeds.

The Lenexa, Kansas-based company has matured since the canceled 2012 IPO, topping Nasdaq Inc. as the second-largest operator of U.S. stock exchanges and entering the world’s largest asset class -- currencies -- through last year’s purchase of Hotspot FX. The IPO valued Bats at $1.8 billion, more than double the $760 million valuation awarded by the 2012 offering.

A software bug wrecked the company’s initial IPO attempt. While it’s not unheard of for a company to withdraw an IPO, what Bats was forced to do in 2012 was extremely rare. After its underwriters sold shares to investors, Bats couldn’t get the stock trading smoothly hours later on its own stock exchange. The pain spread to Apple Inc.’s shares, which were halted due to the malfunction. Out of concern the situation could worsen, Bats canceled the IPO. This time, there was no obvious issue.

“This time everything went smoothly and they’re off and running,” said James Angel, a finance professor at Georgetown University in Washington. “This was a perfectly engineered IPO,” he added. “All the technology worked and they got a much higher valuation this time around.”

Bats last year raked in $384.4 million in net revenue -- or sales after trading rebates and other items are deducted -- up 25 percent from a year earlier. Net income climbed 67 percent in 2015 to $82.2 million.

In what has been a slow start for IPOs in 2016, only 10 companies -- all biotech firms -- went public before Bats, the slowest start to a year since the last recession. Companies, bankers and investors have been looking to the Bats deal for signs of hope that the IPO market will pick back up. At $253 million, this was the biggest IPO of the year.

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