Update: Markit priced at $24 per share on Wednesday evening, in the middle of its expected range. The company raised close to $1.3 billion in an initial public offering that put its market value at around $4.3 billion.

Tracking and trading derivatives used to be a game of “trust me” controlled by the big banks. Now, it’s one of “trust but verify,” as big investors rely on centralized data crunchers to help value and process complex financial instruments.



Markit Ltd. is one of the main firms trusted to verify crucial trading bets and asset values. And a big reason it serves this function is that the big banks and hedge funds have entrusted Markit with the contents of their own books, allowing it to offer authoritative data on the “upstairs” capital markets. When the London-based company prices an initial public stock offering Wednesday, it appears it will become a favored play on the post-crisis capital markets.



Indeed, one of the spurs for Markit to come public is the crisis aftermath itself: The company is largely owned by big banks and other financial market participants, many of whom are selling shares in the offering in order to reap gains from a successful investment, solidify Markit as a trusted third-party arbiter of financial information and help bolster their own capital levels.



Markit is planning to raise as much as $1.02 billion Wednesday evening if shares price at the top end of the $23 to $25 anticipated range, which would give the 11-year-old company a market value of $4.5 billion. The stock will trade on the Nasdaq under the ticker MRKT.

Banks to sell down their stakes



Most of the Wall Street and European banks that collectively own a large majority of Markit will be selling down their stakes in the IPO, led by Bank of America Corp. (BAC), Deutsche Bank AG (DB), Goldman Sachs Group (GS), JP Morgan Chase & Co. (JPM) and eight other institutions. These banks will sell between $100 and $175 million worth of stock each, if the deal goes at $25 a share, and each will retain between 3% and 6% of the company to participate in further upside. Private-equity backer General Atlantic Partners is not selling any of its 11.5% stake, and Canadian Pension Investment Board may buy more shares on the offering.



The company was founded in 2003, by entrepreneurs led by CEO Lance Uggla, a Canadian capital-markets veteran, as a central repository of data on non-listed assets and derivatives collected from financial market participants. Its initial product was a daily pricing product for credit default swaps, an opaque category of derivatives valued independently by dealers and funds.



While perhaps best-known to the public for its sponsorship of various economic indicators such as the Markit Purchasing Managers Indexes, the company now has an array of pricing, index and valuation products; a trade-processing division; and a software unit that helps financial firms build in-house trading and analysis systems. Its primary competitors are diversified news-and-information giants Bloomberg LP and Thomson Reuters Corp. (TRI), meaning Markit will become the main pure play in its business.



“It is on the right side of a post-Dodd-Frank world,” says one portfolio manager intending to buy Markit shares on the IPO, referring to the main financial regulation law that sought to mitigate financial-industry risks. Its central pricing and processing offers third-party accountability and outsourcing for banks now discouraged from doing it all themselves in private.



Markit was the keeper of the ABX credit-derivatives indexes that became notorious after the financial crisis as a way several big investors made aggressive bets against subprime mortgages as housing melted down. Growth has been rapid as global market players have feasted on ways to slice up markets into discrete bets, and to vary specific risk exposures through over-the-counter instruments. As the company’s prospectus notes, it can become entangled in litigation over the reliability of its valuation work and relationships with certain clients. But none of that appears terribly threatening to its long-term business.



A draw to growth investors

Markit’s revenue rose 24% between 2011 and 2013, and its preferred measure of cash flow surged 38% over that time. In the first quarter, its annual run rate of revenue surpassed $1 billion and its earnings were nearing a $1 a share yearly clip. At a $25 share price, the company would be valued at 25-times the 2014 profits pace, which growth investors will likely view as quite attractive given the company’s expansion path and high-margin business model.



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