Safeway Plans IPO for Its Gift Card Biz

It’s an intriguing way to play the trend in prepaid spending

   

Safeway (NYSE:SWY) has filed to take its gift-card division, Blackhawk Network Holdings, public.  While Wall Street does not seem to care much — the shares are down 0.4% in today’s trading — the company has nonetheless had a strong start to the year, up a stellar 37% since Jan. 1.

Blackhawk operates one of the world’s largest prepaid payment networks, spanning 18 countries and boasting more than 100,000 active retail distribution locations — you know, those kiosks at grocery stores where you can pick up last-minute gift cards for restaurants and retail outlets.  Last year, the network process $8.5 billion in load value and handled 216 million load transactions.  Blackhawk has invested more than $100 million in building its platform.

Blackhawk’s gift-card brands include Amazon.com (NASDAQ:AMZN), Apple’s (NASDAQ:AAPL) iTunes, Lowe’s (NYSE:LOW) and Starbucks (NYSE:SBUX).  The company also has distribution agreements with Green Dot (NASDAQ:GDOT) and NetSpend, which provide general purpose reloadable cards.

As should be no surprise, Blackhawk’s largest channel is the grocery segment.  Besides Safeway, the company’s partners include Ahold, Giant Eagle, Kroger (NYSE:KR), Loblaws amd Publix.  But the company also has arrangements with specialty retailers such as Staples (NASDAQ:SPLS) and Bed Bath & Beyond (NASDAQ:BBBY).

Growth has certainly been strong:  From 2008 to 2012, revenues have gone from $362 million to $959 million, with adjusted net income more than doubling to $50.3 million. And the future looks bright as well. According to a study from the Mercator Advisory group, the prepaid market is expected to grow at about 12% per year from 2012 to 2015.

But even that rosy outlook may understate the potential. Why? Simple — smartphones.  Let’s face it, they will likely become a replacement of the wallet.

As for the IPO, Blackhawk has a long list of underwriters:  Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Deutsche Bank (NYSE:DB).  The company plans to list on the Nasdaq under the symbol of “HAWK.”  Terms of the deal were not disclosed.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/safeway-plans-ipo-for-its-gift-card-biz/.

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