Bitcoin sets a new all-time high above $6,000 >>> READ MORE

Ally Financial IPO: Don’t Bank on a Blockbuster Offering

However, there is not much to differentiate this company.


Ally Financial, a top auto finance company, has set the terms for its upcoming IPO, and the numbers are interesting — 95 million shares at a range of $25 to $28, which would mean a valuation of $13 billion at the midpoint.

ally-financial-ipoBut it’s hard to get excited for its prospects — there’s not much to differentiate Ally Financial from the industry’s many competitors.

A little background: The roots of Ally Financial go back to 1919 (right after World War I) when it was the finance arm for General Motors (GM). But by 2006, the automaker sold off a majority of the company, and of course, a few years later Ally got a $17.2 billion bailout loan from the federal government.

Since then, the firm has been engaged in a massive restructuring of its operations, including the unloading of its offshore business and much of its mortgage business. In fact, Ally was able to get an exemption for over a majority of its liability exposure from the subprime business (known as ResCap).

As of now, Ally Financial has two main segments:

  • Dealer Financial Services: This is the larger of Ally Financial’s two primary segments. Ally provides auto dealers with a full suite of services such as savings, checking, insurance and loans. The customer base includes about 16,000 dealers in the U.S.
  • Ally Bank: You’ve probably seen the advertising for this branch. For the most part, Ally Bank is an online/mobile financial firm. The company believes this model allows for lower fees while catering to the growing population of technologically savvy consumers. There are about 784,000 customers.

The company’s financials are fairly decent; last year, Ally Financial generated earnings of $361 million on revenues of $4.26 billion. If the auto market continues to improve, Dealer Financial Services should have more opportunity to grow.

However, the government will act as an overhang on Ally Financial. The Department of the Treasury will get all the proceeds from the offering, and after the Ally IPO, it still will own about 11% of the company’s shares. (That’s after years of unloading holdings to private investors such as Daniel Loeb’s Third Point LLC, which has a 9.5% stake, and Cerberus Capital Management, which holds 8.6%.)

Something else that should be in the back of potential investors’ minds: Santander Consumer USA (SC), which is another auto finance operator, recently pulled off an IPO that only had a middling reception. Since coming public in January, SC shares are off about 3.6%.

I’d expect the same from the Ally Financial IPO.

While the auto market has shown prolonged signs of improvement, there’s a difference between improving and going gangbusters.

And its Internet-banking business? It’s not as much of a differentiator as it would appear, as many other major banks have listened to consumer demand — and helped their own costs — by going increasingly digital, offering features such as deposit-by-photo and online tools.

In short: Don’t expect much in the way of fireworks when Ally Financial goes public, which likely will happen in a couple weeks.

Ally Financial IPO Details

  • Expected Offering Date: Sometime in April.
  • Ticker: ALLY, to be traded on the New York Stock Exchange
  • Lead UnderwritersCiti (C), Goldman Sachs (GS), Morgan Stanley (MS), Barclays (BCS), BofA Merrill Lynch (BAC), Deutsche Bank (DB), JPMorgan (JPM).

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. 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,

©2017 InvestorPlace Media, LLC