Colleen Brady never had much interest in owning stocks until she received an e-mail offering the chance to buy shares last month in the initial public offering of movie-theater owner AMC Entertainment Holdings Inc. (AMC:US)
“I go there with my kids all the time, they have this great snack bar and I can buy my tickets in advance,” said Brady, 43, a Freehold, New Jersey, mother of two. “My husband said to invest in what you know.”
She did, buying $500 worth at the same $18 per-share price that fund managers paid, through a San Francisco company called Loyal3 Holdings Inc. This startup is out to make tiny amounts of IPO shares available to investors with as little as $100 to invest, who are now mostly shut out of the process. Loyal3, which underwrites the IPOs alongside Wall Street banks, said it’s the only company with this model.
AMC was Loyal3’s first client, and last week the firm sold shares for Santander Consumer USA Holdings Inc. (SC:US)’s IPO.
“IPOs are the bastion of elitism where people have been locked out,” Barry Schneider, Loyal3’s chief executive officer, said in an interview at Bloomberg headquarters in New York. “We think individuals matter.”
The direct-to-investor model comes amid a buoyant IPO market as 211 companies went public last year, the most since before the financial crisis, raising $56 billion, according to data compiled by Bloomberg.
Institutional investors tend to have a leg up on IPOs, getting invites to roadshows where companies pitch their stocks. Investment bankers also market their deals to fund managers who can buy millions of shares ahead of the offering.
Individuals can buy IPO shares through brokerage firms such as Fidelity Investments, though these typically require large account balances -- $500,000 in Fidelity’s case, depending on the type of deal.
AMC sale’s was marketed to the movie chain’s customer loyalty plan, called Stubs, and members could buy from $100 of stock to as much as $2,500 of shares. Loyal3 used online advertising to promote Santander Consumer’s deal directly to retail investors.
As an underwriter, Loyal3 makes money when issuers pay it a fee to sell the shares. The firm was allocated 0.07 percent of the total 75 million Santander Consumer shares sold, according to Santander’s latest filing. It sold 2.2 percent of the AMC shares, Loyal3 said. Citigroup Inc. was the lead underwriter for the two deals.
Both AMC and Santander Consumer, a unit of Banco Santander SA, rose 5 percent on their trading debuts, well below the average 21 percent day-one jump for U.S. IPOs last year, according to data compiled by Bloomberg.
Loyal3 is targeting its service to consumer companies, Schneider said. A Bain & Co. study found that a company’s customers who also owned stock were more loyal than non-equity owners, Schneider said. Loyal3 also allows retail investors to buy and sell shares of public companies, such as Amazon.com Inc.
It’s unclear how many more companies will engage Loyal3 to sell its IPO stock, said Tim Loughran, a finance professor at the University of Notre Dame at Indiana.
“The big caveat is whether the good IPOs, like Twitter, are going to be doing this,” Loughran said by telephone. “If you’re not a perfect company, this could be a good way to get your shares sold.”
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