This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Antitrust Probes A Risk In Markit IPO

Stocks in this article: GS JPM

NEW YORK (TheStreet) - Financial market data provider Markit disclosed strong profits and revenue growth in a F-1 filing for its initial public offering on Monday, however, antitrust probes in Europe and the U.S. remain a big risk for prospective investors in the Goldman Sachs (GS), JPMorgan (JPM) and Bank of America (BAC)-backed company.

On Monday, Markit filed its prospectus for an IPO, and disclosed a $750 million placeholder for the listing. A review of Markit's financials shows that the company has been able to weather an onslaught of financial market regulation, growing earnings and profits strongly in the wake of the crisis even as many of its banking and hedge fund customers have suffered. Investigations by the Antitrust Division of the U.S. Department of Justice and the Competition Directorate of the European Commission, however, are an issue that investors should think carefully about as the Bermuda-based company moves towards a share offering.

In 2013, Markit grew its revenue about 10% to $947.9 million from $860 million a year earlier. Net income, meanwhile, rose to $139.4 million, while adjusted earnings before interest, depreciation and amortization (EBITDA) rose over 15% to $421 million. Adjusted EBITDA margins at Markit reached 45.6% in 2013, reflecting the company's operating leverage and its cost management.

No one is arguing that Markit is a bad business and, in fact, the company's earnings are impressive. 

The company has three primary businesses: Information, Processing and Solutions. The Information division accounts for 48.5% of Markit's revenue and hinges on pricing data, index licenses and financial analytics. In many markets, for instance some over-the-counter credit default swap markets, Markit is the de-facto source of pricing. Any bank or hedge fund trading OTC swaps, consequently, pays Markit significant fees for pricing data. Licenses to indices and analytics also are a source of income for Markit.

Markit also processes OTC derivative, foreign exchange and syndicated loan trades, acting as a key back-office intermediary between buy-side and sell-side firms. Currently, the firm has a leading market share in OTC trade processing, handling over 80,000 trades a day, while also settling most of the leveraged loan market. If OTC derivative trading may be tapering off, leveraged loan syndication has surged. The processing division now accounts for over 28% of Markit's revenue.

The company also provides software and IT solutions, accounting for 23% of revenue. Overall, the company counts most of the big players in financial markets as its customers. Bank of America, Deutsche Bank, Esta Investments, General Atlantic Partners, Goldman Sachs and JPMorgan are investors with an over 5% stake in the company. About 49.9% of Markit's revenue came from customers in the U.S, with 40.3% from the EU and 9.8% from the rest of the world.

Antitrust As A Risk

It is Markit's biggest two markets, the U.S. and the EU, where the company may present a risk. In Markit's F-1 filing, the company disclosed that it is subject to antitrust investigations in both regions related to the company's credit default swap information business, where it is the de facto market leader.

Markit said on Monday it began speaking with the Department of Justice in the spring of 2009 as part of an investigation about its actions in CDS markets. European authorities opened an investigation into the company in the spring of 2011. Both investigations remain open, Markit said on Monday.

"From September 2009 through August 2012, the parties to the DOJ investigation, including the Dealers and Markit, produced documents in response to DOJ requests for information and participated in depositions conducted by the DOJ. The matter remains pending with the DOJ. Markit has been fully cooperative, and will continue to cooperate, with the DOJ in connection with its investigation," Markit said of the DoJ probe on Monday.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs