IPO Preview: Blackhawk Network Holdings

| About: Blackhawk Network (HAWK)
This article is now exclusive for PRO subscribers.

Based in Pleasanton, CA, Blackhawk Network Holdings (NASDAQ:HAWK) scheduled a $210 million IPO with a market capitalization of $1.1 billion, at a price range mid-point of $21 for Friday, April 19, 2013.

Seven IPOs were scheduled for the week of April 15th. The full IPO calendar is here.

S-1 filed April 8, 2013

Manager, Joint Managers: Goldman, Sachs/ BofA Merrill Lynch/ Citigroup/ Deutsche Bank Securities.
Co Managers: Barclays/ BMO Capital Markets/ Credit Suisse/ Piper Jaffray/ Raymond James/ Wells Fargo Securities.

HAWK has been incubated by Safeway (NYSE:SWY) - $6.4 billion market cap - since its founding in 2001. HAWK now

  • dominates the gift card market,
  • has a very clean balance sheet,
  • pays high commissions to its resellers and
  • has no interest payments to private equity sponsors such as Blackstone and Apollo, both of whom are using the current stock market to cash out of many of their private equity investments.

100% of the IPO proceeds is allocated for shareholders. Usually that's a bad sign, but in this case it may be why HAWK is attractively priced on the IPO. And it's ok with HAWK because HAWK is an unusually good, clean company with no 'sponsor' private equity termination fees payable from IPO proceeds.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

yr ended Dec 2012

Cap (MM)





in IPO

Blackhawk Network Holdings







NetSpend Holdings (NASDAQ:NTSP)






Green Dot (NYSE:GDOT)







HAWK is reasonably priced compared to Green Dot and Netspend; HAWK is in the middle range for price-to-sales, price-to-earnings, price-to-book value and is at a premium regarding price-to-tangible book value.

GDOT and NTSP are both in the "GPR card" business. GPR means General Purpose Reloadable open loop prepaid cards, and often targets the unbanked, lower income market.

HAWK, however, is the dominant leader in the gift card market, which targets a broader consumer segment and has strong growth drivers. In 2012, HAWK's gift card products represented 84% of total revenues.

NetSpend is in the process of being acquired for $1.4 billion.

Year over year % change analytics
However, only HAWK has produced positive, consistent year-over-year rate-of-change metrics for such key metrics as the following. GDOT's growing revenue but profits are stuck in a range.

Positive up trends based on the income statement
Dist partner commission %

After-tax income

NON-GAPP % yr over yr net income

Number of selling stores
Load Value
Number of load transactions
Ave load value

HAWK is a premier company in its market segment and should be bought on the IPO. Its future is bright.

HAWK was founded in 2001 as a division of Safeway and changed its name to Blackhawk Network in 2006.

HAWK is currently 96% owned by Safeway. Safeway will continue to hold shares of Class B common stock representing a 97% voting power post IPO. Safeway is also one of HAWK's largest distribution partners

HAWK issues "GPR cards", meaning general purpose reloadable open loop prepaid cards. Cards are registered by the cardholder with the issuing bank or licensed money transmitter after customer identification is performed.

In fiscal year 2012, HAWK processed a total load value of $8.5 billion and over 216 million load transactions. In 2012, HAWK's gift card products represented 84% of total revenues.

HAWK is a leading prepaid payment network utilizing proprietary technology to offer a broad range of gift cards, other prepaid products and payment services in the United States and 18 other countries.

HAWK is one of the largest third-party distributors of gift cards in the world based on the total value of funds loaded on the cards HAWK distributes, referred to as load value.

HAWK's network connects to more than 500 content providers and over 100,000 active retail distribution locations, providing access to over 160 million consumer visits per week.

In addition, HAWK sells physical and electronic gift cards to consumers through both leading online distributors and the website, GiftCardMall.com.

Prepaid, 12% CAGR

As paper-based forms of payment have declined over the last several decades, card-based and other electronic forms of payment have increased significantly, with the development of different types of payment products and services to address specific consumer needs.

Gift cards and other prepaid products represent a large and quickly growing segment within the continuing shift toward electronic payments. Prepaid products accounted for an estimated $483 billion of load value in the United States in 2011 and are expected to grow at a projected 12% CAGR from 2011 to 2015 according to Mercator Advisory Group's "U.S. Prepaid Cards Market Forecasts, 2012-2015" research report.

Gift Cards
Consumers increasingly view gift cards as convenient self-use products that often provide many advantages over traditional cash, debit and credit payment methods. This trend towards self-use is redefining the scope of the addressable market in the gift card category.

Digital products and mobile payments are also emerging as the "next generation" in prepaid technology, facilitating convenience and accessibility for consumers.

Many merchants now offer prepaid products that can be purchased online and then delivered electronically either to the purchaser or to a gift recipient through email or social media.

Mobile digital wallet applications are also being offered to provide consumers greater convenience and flexibility by using their mobile phone as a payment device at the point of sale.

Worldwide mobile payment transactions are expected to grow to $617 billion in 2016 from $172 billion in 2012, according to Gartner's "Forecast: Mobile Payment, Worldwide, 2009-2016" May 2012 research report.

As mobile digital wallets continue to gain more widespread adoption, consumers will demand integrated solutions for management of their prepaid products.

Platforms that can provide digital market participants with critical prepaid functionality and connectivity between consumers, retailers and payments networks will be best positioned to share in the rapid growth of this opportunity for mobile digital wallets.

HAWK offers gift cards from leading consumer brands such as Amazon.com, Applebee's, iTunes, Lowe's, Macy's and Starbucks and from payment networks such as American Express, MasterCard and Visa.

HAWK also distributes prepaid telecom products offered by leading prepaid wireless telecom brands.

In addition, HAWK distributes general purpose reloadable, or GPR, cards provided by Green Dot and NetSpend, the industry leaders in this product category, as well as PayPower, HAWK's own GPR card.

REloadit, HAWK's proprietary reload network, allows consumers to reload funds onto certain of their previously purchased GPR cards.

Content relationships
HAWK's content provider relationships allow HAWK to provide what HAWK believes is the most extensive selection of gift card brands and prepaid products in a single shopping location for consumers seeking to purchase prepaid products both as gifts and for their own use.

HAWK distributes its products across multiple high-traffic channels such as grocery, convenience, specialty and online retailers.

Grocery is HAWK's largest channel and enjoys a high volume of frequent visits from all consumer demographics.

HAWK's distribution network includes nine of the top ten, and 90% of the aggregate grocery store locations operated by the top 50, conventional grocery retailers in the United States and Canada as reported by Supermarket News on January 30, 2012.

These grocery retailers include Ahold, Giant Eagle, Kroger, Loblaws, Publix and Safeway. HAWK also distributes its products in specialty retailers such as Bed Bath & Beyond, Lowe's and Staples, in convenience stores such as QuikTrip and Wawa, and in other retailers such as JC Penney and Kohl's.

In addition to the United States, HAWK distributes its products in 18 other countries, including Canada, the United Kingdom and Australia.

15% International
HAWK is expanding in Brazil and Korea and also plans to begin selling in China in 2013. International business accounted for 15% of total revenues in 2012.

Because of the wide array of quality content HAWK offers and the high-growth, highly productive characteristics of the product category, HAWK has been able to develop strong relationships with distribution partners, generally with multi-year contracts containing varying degrees of exclusivity.

HAWK has invested over $100 million in its proprietary technology platform which connects content providers, distribution partners and transaction processors, and allows consumers to easily load, reload, redeem and manage prepaid cards.

HAWK believes its technology capabilities provide the company with significant competitive advantages and cannot be easily replicated.

Continue to Develop International Markets
HAWK continues to expand its business in countries with strong growth potential and the appropriate payment and retail infrastructure to support prepaid products.

For example, HAWK has replicated the U.S. model in Canada, where it offers prepaid products through leading grocery and convenience stores.

HAWK also has international operations in Australia, the United Kingdom and other countries in the European Union, where HAWK has contracted with leading distribution partners.

HAWK is expanding in a number of countries including Brazil and Korea and also plans to begin selling in China in 2013, as noted above.

Expand U.S. Distribution
HAWK believes there is opportunity to expand its distribution to new retail partners in the United States.

As of January 31, 2013, HAWK owns, or is the exclusive licensee of 26 patents in various countries providing coverage for systems and methods relating to prepaid product loads and reloads, ewallet services, eGift card transactions, packaging, card design, processing, online services and card exchange, and has exclusive rights to two patents related to fraud prevention in egift card transactions.

HAWK has an additional 66 patent applications in various countries for various card assemblies and packaging, security features, activation and processing methods, and online prepaid services and has licensed exclusive rights that arise from nine patent applications.

The prepaid industry is highly competitive.

For gift card and telecom products, HAWK primarily competes with Interactive Communications International, or InComm, and Euronet.

In the GPR card market, HAWK's PayPower GPR card currently competes with Green Dot and NetSpend cards, which HAWK also distributes in selected locations.

HAWK operates a reload network, branded as the REloadit network, which currently competes with other reload networks, including those for Green Dot and NetSpend.

Numerous other companies have announced their intention to enter the GPR card market. HAWK also competes with a number of other industry participants in the United States and internationally in connection with prepaid card issuance, program management, prepaid product distribution, marketing and processing and secondary card exchange.

HAWK also faces competition from companies who are developing new prepaid access technologies and from businesses outside of the prepaid industry, including traditional providers of financial services such as banks and money services providers, and card issuers that offer credit cards, private label retail cards and gift cards.

Safeway Inc. owns 95.4%

No dividends planned.

100% to selling stockholders.

Disclaimer: This HAWK IPO report is based on a reading and analysis of the HAWK S-1 filing which can be found here and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.