Nanalyze

First Data: How to Buy Pre-IPO Shares Right Now

We’ve talked before about a platform called Loyal3 that lets you buy shares pre-IPO and we’ve found that more times than not, these shares will outperform immediately after the IPO debut. Take the following chart from Renaissance Capital which shows that the average “first day pop” for an IPO in 2015 so far is +16%:

IPO_Pop

So if you buy pre-IPO shares with the intent to flip them immediately after the first day of trading, does that make you a speculator or an investor? If you have no intent to hold the shares for the long term then you’re a speculator by definition. However, in this case, the likelihood of a positive return exceeds that of a negative return based simply on historical data. Here’s the return realized the first day of trading for all pre-IPOs offered on Loyal3 so far:

Loyal3_IPO_Returns

In every case so far, you would have realized a positive return by buying pre-IPO shares of any IPO offered on the Loyal3 platform. You don’t have to factor in transaction costs because there are none on Loyal3. All trades are free. We like these odds, so we’re going to participate in the pre-IPO offering announced today by Loyal3 for a company called First Data.

First Data is a company involved in payment processing, and handles about 2,300 transactions per second. With 6 million merchants globally, it has the highest number of merchants in the payment industry and handles 45% of all U.S. credit and debit transaction. The Company was taken private by KKR in 2007, and now they are looking to raise up to $3.6 billion with this IPO which would make it the biggest IPO this year for a U.S. company. The IPO is expected to price on October 14.

In this case though, we’re not overly concerned with what this company does. We’re only interested in trying to realize a quick ROI by buying pre-IPO shares because historically, this strategy has produced positive returns. If you want to buy pre-IPO shares in First Data, you’ll need to act fast because it’s on a first-come, first-served basis. Here are the steps you’ll need to take, starting with opening a Loyal3 account:

First_Data_IPO_2

You can invest as little as $100 or as much as $10,000. Depending on total demand, you may only get a fraction of your order filled. When we participated in the GoPro IPO, only 15% of our reservation was filled. This means the most you could have purchased in GoPro was $1500 worth if you reserved the $10,000 maximum. We put in a $5,000 reservation for First Data as seen below:

First_Data_IPO_4

While it looks like an interesting company, we’re just looking for an immediate return following the first day of trading. In order to be completely objective, we plan to put the sell order in the day we receive control of our First Data shares, even if this means selling for a loss.

Robo-advisors like Betterment provide a low-risk way to invest that we recommend for beginner and advanced investors alike. You can open an account with no minimums and contribute as often and as much as you'd like. Don't have cash on hand to invest? You can roll over your 401(k) or IRA in just 60 seconds. Click here to get started.

  • Nanalyze

    UPDATE: 10/17/2015
    We learned one key takeaway from this exercise. Based on Loyal3 policy, if the pre-IPO shares price above or below 20% from the original offering then you have a 2-hour window to confirm your order. We missed that window so did not get allocated any shares. If you were allocated shares at the adjusted pre-IPO price of $16 dollars per share, you’d be exactly par based on the next day’s closing price. Maybe not the best of outcomes, but since Loyal3 is transaction free you wouldn’t have lost any money in this scenario.

    Following this lackluster IPO offering, the street is pointing to the IPO market as going cold. This may be the case, but we’ll continue to buy into pre-IPO offerings from Loyal3 since the track record remains good.

    Did anyone else participate in the pre-IPO offering for First Data?

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