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Green Dot advances 22% after IPO raises $164 Million

Green Dot Corp., the largest U.S. provider of reloadable prepaid debit cards, jumped 22 percent after convincing buyers to pay more than the forecast price range for its $164 million initial public offering.

Shares of Green Dot climbed $7.99 to $43.99 Thursday after management and stakeholders sold 4.56 million shares at $36 each on Wednesday, according to Bloomberg data. The Monrovia, Calif.-based company 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.”

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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. Cravath, Swaine & Moore LLP in New York represented the underwriters.

Ameresco Inc., the Framingham, Mass.-based contractor that helps companies improve energy efficiency, also sold shares yesterday, raising $87 million in an offering led by Bank of America Corp. of Charlotte, North Carolina.

The Ameresco sale, at $10 a share, was 38 percent less than the original amount sought after buyers rejected terms as high as $16 a share, according to its regulatory filing and Bloomberg data. The shares rose 1.7 percent to $10.17 in New York.

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.

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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.

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 to the company’s filing with the Securities and Exchange Commission prior to the IPO.

“You can’t be in business to serve Americans earning less than $75,000 a year and not partner with Wal-Mart,” Streit said in an interview from the New York Stock Exchange. “That relationship will continue.”

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, Calif.-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.

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.

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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 19 times its estimated 2010 earnings. MoneyGram in Minneapolis and Englewood, Colorado- based Western Union Co., two cash-transfer companies, are valued at less than 13 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.


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