JGWPT Holdings (JGW), a firm that purchases structured settlements, annuity and lottery payment streams, and interests in the proceeds of legal claims, plans to raise $250.1 million in its upcoming IPO on Friday, November 8th. The Radnor, Pennsylvania, Maryland-based firm will offer 12.2 million shares at an expected price range of $19-$22 per share. If the IPO can reach the midpoint of that range at $20.50 per share, JGW will command a market value of $581 million. (See-S-1)
JGW filed on October 7, 2013.
Lead Underwriters: Barclays Capital, Credit Suisse Securities (USA) LLC
Underwriters: Deutsche Bank Securities, Jefferies LLC, JMP Securities LLC, Keefe, Bruyette & Woods Stephens Inc.
JGW is a direct-response marketer that offers liquidity to customers seeking immediate capital in exchange for structured settlements or annuities-as decades of the firm's JG Wentworth brand commercials attest, when it comes to money, JGW's customers "want it now."
The firm does not make loans or take consumer credit risk, instead purchasing future payment streams owed by reliable counter parties; in 2012, some 90% of the counter parties to purchased structured settlement streams had a Moody's investment grade of A3 or better.
The firm makes significant efforts to improve name recognition of its two well-known brands, JG Wentworth and Peachtree, as lack of information about customers with available revenue streams makes direct sales impossible or at least desperately inefficient.
The firm has spent over half a billion dollars on marketing its brands since 1995. JGW has also constructed proprietary customer databases of current and prospective customers in an effort to improve conversion rates.
JGW offers the following figures in its S-1 balance sheet for the six months ending June 30, 2013:
Net Income: $68,065,000
Total Assets: $4,362,402,000
Total Liabilities: $4,323,965,000
Stockholders' Equity: $38,437,000
JGW is the dominant force in its market, but it nonetheless faces some competition from other firms offering similar services. These firms include Stone Street Capital, Imperial Holdings (IFT), Novation Capital, SenecaOne, Advanced Funding Solutions, Client First Settlement Funding and NuPoint Funding. We don't believe that any of these firms exists on a scale comparable to JGW.
CEO and Chairman David Miller has been with JGW since 2009. His compensation for 2012 was $1,882,000 which we find somewhat excessive.
He previously served as Executive Vice-President responsible for Ace Group's International Accident and Health Insurance Business and as President and CEO of Kemper Auto and Home Insurance. Mr. Miller has also worked in executive and managerial positions for Providian Direct Insurance and Progressive Insurance. Mr. Miller holds a BSEE in electrical engineering from Duke University and an MBA in Finance from The Wharton School of the University of Pennsylvania. He was previously a member of the New York Stock Exchange.
On May 7, 2009, J.G. Wentworth, LLC, J.G. Wentworth, Inc., and JGW Holdco, LLC filed for protection under Chapter 11 of the United States Bankruptcy Code. At the time of such filing, Mr. Miller was a director and executive officer of J.G. Wentworth, LLC and J.G. Wentworth, though his tenure with the firm was so young at the time that he should hardly be held accountable for the circumstances that led to the bankruptcy.
We are very cautious on the JGW IPO given the high valuation at a proposed price range of $19 to $22. We are hopeful that the institutional buyers of this IPO will guide the company and the underwriters to what we believe is a more realistic price range of $15 to $17 based on our opinion of a proper value for this business.
The firm's control of a pair of extremely recognizable brands, along with its business model that more or less precludes losses, make this IPO attractive in the $14 to $17 price range. So long as Peach Tree and JG Wentworth maintain their name recognition, we see no reason that JGW shouldn't continue to grow steadily.
Potential investors should be certain to review the S-1 carefully, especially the seventeen pages of a potpourri of many risks factors that the company, the underwriters and their fine lawyers from Skadden, Arps and Latham & Watkins have described on pages 23 to 40 of the S-1.