The World Series is in sight. The market is reaching for Dow 10,000. Topcoats are coming out of closets in the upper midwest and northeast. Leaves are turning red, orange and gold in the hardwood forests. And that other cheery mark of autumn is back with us this year as well: deal flow. Although it is clearly out of our bailiwick, this morning’s Blackstone article is a keynote: CEO Stephen Schwarzman is looking for 8 big IPOs in the near future: http://finance.yahoo.com/news/Blackstone-CEO-sees-up-to-8-apf-176726039.html?x=0&sec=topStories&pos=2&asset=&ccode=. Call it a series of liquidity events for Blackstone; call it a mitzvah for the NYC-based asset manager. At the same time, Kohlberg Kravis Roberts is looking to monetize its purchase of Dollar General Stores in an IPO. The earth trembles at the footfall of giants.
But the smaller fry are active as well, and that may be considerably more important for the vast majority of us. Throwing a dart at the board, look at Milwaukee-based employee-owned investment bank, RW Baird, fairly recently emancipated by former owner Northwestern Mutual Life, whose headquarters is virtually across the street. In an industry that was quiet as a tomb a year ago, Baird has completed 7 follow-on offerings since the week before Labor Day. Those 7 offerings total $831.6 million raised, probably a better-than-expected September. And the deals were all over the place: http://www.rwbaird.com/ci/investment-banking/equity/equity-transactions.aspx.
Point is that Baird is not alone in making hay while the sun shines (a particularly autumnal saying). One of the sure-fire signs of life in the deal business in Manhattan is the line-up of Lincoln Towncars outside the big law offices at night, when the indentured young lawyers work on prospectus alterations, re-model changing forecasts, etc. An informal survey shows very long lines outside Cravath Swain & Moore in Worldwide Plaza on 8th Avenue, and outside Proskauer Rose in the Morgan Stanley building on 48th St. Hmmm.
Deal Flow Media’s database service, PrivateRaise, put out a press release this morning announcing that deal flow in the PIPE market “returned to historical levels” in the 3rd quarter: http://www.privateraise.com/press/2009-10-14.php. US companies raised $7.9 billion in 290 PIPE deals. Microcap issuers raised $3 billion in 242 deals in the quarter, according to Brett Goetschius, ed of The PIPEs Report.
In our sector of the market, we tend to see more PIPEs than registered offerings, although smaller companies are hastening to put shelf registrations on file, and smaller underwriters are increasingly doing “registered-direct” offerings, which combine a lot of the marketing advantages of a PIPE with the immediate-liquidity of a registered offering. Another dart thrown lands on San Francisco-based Merriman Curhan Ford* (Nasdaq: MERR; www.merrimanco.com). As an investment bank, MCF is specialized in Cleantech, Internet/Media and Healthcare, and the deal flow there has noticeably improved from their published tombstones. Two deals (a financing and an M&A transaction) for Prague-based KIT-Digital (Nasdaq: KITD; http://www.kitd.com) , a debt deal for Bellevue WA-based Coinstar Inc (Nasdaq: CSTR; http://www.coinstar.com/) , a debt deal for Houston-based Rick’s Cabaret (Nasdaq: RICK; http://www.rickscabaret.com/), an M&A deal for Raptor Pharmaceuticals (Nasdaq: RPTPD; http://www.raptorpharma.com/), a follow-on offering for Mountain View CA-based Vivus (Nasdaq: VVUS; http://www.vivus.com/), a registered-direct deal for Gaithersburg MD-based GenVec Inc (Nasdaq: GNVC, http://www.genvec.com), a follow-on offering for Bethesda MD-based Micromet Inc (Nasdaq: MITI, http://www.micromet.de/), and a private placement for Australian coal producer Cougar Energy. While not the investment banker’s full-employment act, it is a lot better than packing your things in a cardboard box and waiting to be checked out, which was what was happening a year ago in midtown Manhattan.
From what we can tell, much of the deal flow is entering the stream through small investment banks commonly called “boutique” banks — many of whom do not offer the “full-service” that bigger, more traditional banks offer. They may or may not be broker-dealers, for instance. They may or they may not have a proprietary trading desk or market-making operation. They may or they may not have a sales force, many of the smaller boutiques choosing to outsource virtually everything but the brain-power and essential connections and networks of the partners. Sometimes it is hard to tell a banker from an asset manager in these cases, because many of them co-invest in their deals a la the traditional UK or European “merchant bank.”
Like many companies in our space, we are watching several deals-in-the-making, and have conducted several “beauty pageants” for companies looking for investment banking services. Although the pace of deals does not seem feverish as it did a couple of years ago, it is definitely oiled up and ready to rip. And many of the recent big-deal offerings have performed quite well, thanks very much. Look at the stock of A123 Systems (Nasdaq: AONE), which has virtually doubled the investment of people who bought on the recent offering and held the stock instead of flipping it. And, stripped of the glamor, A123 is basically an early-stage company whose horizon is pink with sales potential, but whose glory days are putatively out there in the unknown future.
Stay tuned, lots of new products hitting the market week by week.
*Allen & Caron, publisher of this blog, has provided project services to MCF for certain of its international ADR clients.