The attempted BATS IPO was a classic case of a worst-case scenario. The company, which operates the No. 3 stock exchange in the U.S., experienced a malfunction of its software system on the day of its own offering. And the glitch not only sabotaged BATS’ offering, but even resulted in a 9% drop in Apple’s (NASDAQ:AAPL) shares — which at least a few investors watch.
When the CEO of BATS, Joe Ratterman, was on the road show for the past couple weeks, he stressed how his platform was built with cutting-edge technologies and bragged about its sterling uptime and its efficiency.
Somehow, HAL 9000 came to life, and BATS took its place among the most disastrous all-time IPOs. Let’s see where BATS ranks on the podium, as well as the other flops earning a mention.
Gold Medal: BATS
A key part of BATS’ growth strategy is to create a listings business. The company already has had success with exchange-traded funds for BlackRock (NYSE:BLK), but listing actual companies certainly would have been a huge boost for BATS’ credibility. Of course, now this strategy is in shambles — and so is the reputation of the BATS exchange.
In addition to the aforementioned stumbles, on the day of the IPO, The Wall Street Journal reported that people close to the situation said the Securities and Exchange Commission was investigating alternative exchanges, including the BATS. Some of the concerns were the dangers of high-speed trading. Now the SEC likely has even more ammunition for its investigation.
No doubt, the folks at the NYSE Euronext (NYSE:NYX) and Nasdaq OMX (NASDAQ:NDAQ) are smiling. They have been warning against too much automation of markets and emphasizing how important the human element is. And considering the NYSE and Nasdaq obviously understand how to pull off complicated transactions like IPOs, these exchanges should remain the go-to places for offerings. The BATS likely will not even be a consideration.
This is not to say that the BATS is doomed. Bad events can be a great learning experience. Ratterman has already apologized and has said that he’ll work hard to regain trust. But BATS has a tough road ahead.
Silver Medal: Refco
Founded in the late 1960s, Refco turned into one of the largest brokers of commodities and futures contracts. On Aug. 11, 2005, it came public and the stock quickly shot up by 25%, hitting a market value of $3.5 billion.
Unfortunately, in just two months, Refco announced that its CEO, Phillip R. Bennett, concealed $430 million in bad debts as part of a long-running accounting fraud. Within a few weeks, the stock was trading below $1 on the pink sheets and Refco declared Chapter 11 bankruptcy.
Bronze Medal: Wilt Chamberlain’s Restaurants
The Wilt Chamberlain’s Restaurants Co. — owned by one of the NBA’s all-time greats — tried to come public in 1993 by raising a mere $9.8 million. The stock quickly lost a third of its value, and the underwriter canceled the transaction. However, if you still want to get in on shares, you can find them — autograph and all — online for about $1,500.
Honorable Mention: Vonage
Vonage (NYSE:VG) launched its IPO in May 2006 at $17 per share and plummeted to $6.50 within a few months. While Vonage was a fast-growing player in the VOIP space, it still was losing huge amounts of money.
But a big black eye for the IPO came from the fact that Vonage allowed its customers to buy stock at the offering price. Wanting to avoid big losses, some of the customers actually refused to pay for the shares!
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook,” “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.