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Vol. XI, Issue 12
Smaller Deals Create More Work
For Mid-Sized Investment Banks
3/18/13 – Zoetis grabbed headlines earlier this year with a $2.24 billion IPO, the largest deal by a U.S.-headquartered company since Facebook raised $16 billion last May. Billion dollar-plus deals have been hard to come by in the IPO market of late, with only 11 since the start of 2011. The fact that a $2 billion offering stands out is indicative of a larger trend among IPOs over the past few years - the average deal size has gotten smaller.
In 2008, the average amount of proceeds generated by a new issue was $542 million. It was a little smaller in 2009, but still a healthy $388 million. Since then, including this year, the average offering amount has been in the $250 million range. Last year it spiked a little to $310 million, but that reflects the impact of Facebook’s IPO. Without that offering, 2012’s average deal size would have been $198 million.
In general, the numbers reflect a more cautious IPO market since the 2008 financial crisis. Mega-deals still come along once in a while, but the bulk of IPOs are more moderately sized. Nearly half of the IPOs in 2013 to-date have fallen in the $50 million to $250 million range. Similarly, in 2012 67% of the new issues raised between $50 million and $250 million in aggregate proceeds.
On the low end of the scale, there have been six IPOs so far in 2013 that raised between $10 million and $50 million in proceeds. Last year, 12% of the market (17 offerings) fell within that range. Twenty-four (16.5%) of 2011’s IPOs fell within the $10 million to $50 million range, and there were two offerings that raised less than $10 million.
Aggregate IPO Offer Amount
2007 - Present
Small and Mid-Sized Investment Banks - A ripple effect of the reduced offering size has been the prevalence of small and mid-sized investment banks in the IPO space. Large banks still dominate, to be sure, but more small underwriters have been getting in on the action lately.
Friedman Billings Ramsey may be experiencing a reemergence after a slow period. The firm has already served as lead manager on two IPOs this year, tying its full year 2012 total. FBR was lead manager for just one deal in 2011 and two in 2010. This contrasts sharply with the mid-2000s when FBR completed no fewer than four deals in a year. FBR peaked as a first lead manager in 2004 when it worked on 18 IPOs. It also helped bring eight IPO companies to market in each of 2003 and 2005. The bank’s quick start this year could signal a return to its busier days.
Other lead managers off to a fast start in 2013 include Aegis Capital, which has already served as lead underwriter on two offerings. The bank did not lead any IPOs in 2012, after working on just one in 2011. Sandler O’Neill has also emerged as an IPO lead manager after a number of years of inactivity. It served as lead underwriter for Atlas Financial Holdings in early February after not having led an IPO to market since 2006. The firm was lead manager on six deals between 2004 and 2006.
Firms such as Stifel Nicolaus Weisel and Jefferies have maintained a steady IPO underwriting business over the past few years. Jefferies has managed to keep a steady presence in the market since its low point of two IPO lead managements in 2008. The firm served as lead underwriter on 32 deals from 2009 through 2012, including 14 IPOs last year. Jefferies’ 2012 total was one better than Wells Fargo Van Kasper and just two behind UBS. The firm has led one new issue so far in 2013.
Stifel Nicolaus Weisel also saw its IPO business lag during the financial crisis. The firm did not lead any offerings to market in either 2008 or 2009. Since then, it has served as lead manager on 21 IPOs, including two so far this year. U.S. Bancorp Piper Jaffray also has stayed busy with nine lead manager assignments last year, seven in 2011 and 14 in 2010. The firm completed only one in 2008 and two in 2009 during the worst of the global financial crisis.
Lead Manager Assignments
2007 - Present
Bulge Bracket Still Dominates - Despite the success of small and mid-size underwriters recently, large investment banks have not relinquished their domination of the IPO market. The top five lead managers by number of IPOs this year are Barclays (8), Citigroup (6), Goldman Sachs (5), Credit Suisse (5) and BofA Merrill Lynch (5). The same banks, along with JPMorgan. Morgan Stanley, Deutsche Bank and UBS have led the IPO lead manager rankings consistently over the years.
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