Today we reached the tenth anniversary of MasterCard’s May 25th, 2006 IPO, and we are looking back with one of the key players that made this IPO and several others successful, Charles Gregor. One of the highest performing stocks over the past ten years has been MasterCard (MA). Though some readers may not think of a large-cap company established in 1966 under its original name, “Interbank Card Association” (thank goodness that changed) could produce so well for its investors, looking at the ten-year performance, we see their results:
MasterCard was started by a consortium of banks and regional bank-card associations as a response to Bank of America’s BankAmericard (this card later became the Visa and similarly named card company).
The long-awaited IPO
The IPO that finally brought MasterCard public was forty years after their 1966 origin. So how has Martercaard performed for its early investors? The initial May 25th, 2006 IPO share price that Charles Gregor saw was $39/share, with half of its 135 million shares being provided to the public. MasterCard and Gregor raised $2.4 billion on that day, giving the company a $5.3 billion total market capitalization.
Despite its short life as a public company, if we fast forward to today’s (May 25th, 2016) closing price, MasterCards sits at $96.45 per share, which would be a 145% increase in ten years; most investors would be ok with a 9.4% average yearly return. However, this would be forgetting that there was a 10 for 1 stock split in January of 2014, so the actual increase is 2373% or a fantastic 37.8% compounded yearly return, putting MasterCard at a current market cap of just over $100 billion. What’s more, this does not include quarterly dividends that have also been paid over the years, which add another $20.78 per initial share. An initial investment of just under $10,000 at the IPO price would get you 256 shares. These would be worth $243,500 today, and you would have been paid another $5320 in dividends along the way.
The man behind the scenes
Charles Gregor was the man behind the scenes of the IPO that started the public life of this now world-class company, and we got a chance to sit down with him and get some insights into what was going on back in 2006.
Charles Gregor started our interview by saying, “This IPO, like most IPOs and private placements, was certainly a crazy time. I started working with the rest of the team at Goldman Sachs in early March 2006, with less than eight weeks to get things done. Even in the early days, we knew that this was going to be a big IPO. Visa was still private (they had their own IPO in March 2008), and because of the internet boom, electronic payments were, and remain, the way of the future. The writing was on the wall.”
Charles Gregor continued, “Immediately, there was a lot of interest from several of the investment banks. I already had contacts with many over the years, and we were able to set up a strong group of buyers. We at Goldman served as the global coordinator of the IPO. We set up a total of four book-runners for the offering that included J.P. Morgan, Citigroup, and HSBC, as well as ourselves. On top of this, Goldman was able to bring in co-managers which were from Harris Nesbitt, Deutsche Bank, Cowen&Co, and the now-defunct Bear Sterns.”
There were worries
Charles Gregor said there were two issues that were worried the IPO team, “In the same week of the Master IPO, Vonage, the VOIP company, had its IPO; and it did horrible. It had an IPO price at $17/share but opened trading at only $13 per share and just fell off a cliff from there. Vonage has still not recovered till today. This caused us to choose to lower our IPO price from $40 to $39, which in hindsight, I think was a good move. We posted a first-day gain of about 18% and ended up being the biggest IPO for the period.”….” The other issue that was going on was the lawsuits related to MasterCard charging interchange fees, these suits are still going on today, and as the CEO stated back then, ‘settlements are going to be a cost of doing business.’ The financial press agreed, and it did not hurt us much.”
Success was certain
Charles Gregor added, “I think that if you have a good company over time they will most definitely prove to be a success. I am proud of the success we acheived with MasterCard and the Banks for that IPO. It was a exciting experience I won’t forget. It is no secret, getting in on a good private placement or IPO is definitely the way to riches. The MasterCard investors have certainly made a lot of money since.”
We ended our interview by asking Charles Gregor why he thought MasterCard did so well since the IPO?
“There are a few important things that have led to their success. Mastercard and Visa are the primary large-scale payment networks outside of Asia. They are trusted by merchants and banks for our digital economy. Newcomer cards are mostly prevented from moving in, but these new cryptocurrencies may make a play, however, they need to gain trust. MasterCard has its network effect, with every new merchant, the company grows stronger. Mastercard still has tons of room to grow; over 80% of global transactions are still in cash, electronic payments could triple in size and still have room for more growth. Finally, they are also moving into new sectors; they have tons of data and plenty of cash for taking over companies. Data continues to play a bigger and bigger role in business, and cash is still king. They will be able to harness these two important atributes and move to the next level over the coming decade.”
Charles Gregor is certainly proud of the work he did with MasterCard and Goldman Sachs and believes in the continued success of the company he helped bring public. A strong company with continued growth potential is undoubtedly one an investor attempts to find as early as possible. Ten years on, MasterCard’s foundation seems even stronger than before.