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December 1, 2002

The Underdog's IPO Chance

By Barbara Etzel

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  • The Underdog's IPO Chance

Regional investment banks are leading the way as the IPO market attempts to recover.

In recent months, Raymond James and The Advest Group lead-managed two of the four IPOs on the calendar. And as of late October, some 22 percent of all IPOs had been led by little guys.

The stronger part played by the regionals may come at the expense of the major investment banks, which have been cutting market making in Nasdaq stocks. Merrill Lynch, for example, earlier this year, vastly reduced the number of stocks in which it is a maker maker. Another benefit for the regionals comes with the Street's reductions in research and investment banking jobs.

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"There is somewhat of a dearth of research, trading and investment banking support right now for small- and mid-cap growth companies. That lends itself well to a firm like Raymond James," said Scott Cook, syndicate manager at Raymond James. "That could be part of the reason why you are seeing regional firms doing more deals."

Recently, Martin Midstream Partners LP, a master limited partnership, was expected to raise about $60 million through an offering. It was expected to price between $19 and $21. That deal was led by Raymond James.

Also expected to price was an IPO that was lead-managed by Advest, a Hartford, Conn.-based financial services company that provides investment banking and asset management services. Advest expected to raise about $14 million for Bancshares of Florida Inc., a Naples, Fla.-based commercial bank.

"If you are a smaller company, a group like Raymond James will pay a lot more attention to you," said Irv DeGraw, vice president at Falcon Capital, a Florida-based private equity firm that tracks IPOs. "You are a bigger fish in a smaller pond," added DeGraw, who as an academic has studied the IPO market.

Apparently that argument is supported by some smaller companies that hope to raise up to $100 million in an IPO. Increasingly, they are turning away from the bulge-bracket players in a trend that has been growing since the spring. During the first quarter, two out of 17 IPOs fell into that category. In February, Jefferies & Co. raised $115.2 million for ManTech International Corp. while ING Barings raised $68.3 billion for Wimm-Bill-Dann Foods.

By April, the tide had turned and small or regional investment banks were increasingly appearing as the lead manager. Since then, 15 of those firms have been the lead manager out of the 62 IPOs that have been completed.

While these firms' share may be increasing, the amount of IPO issuance overall is still anemic. As of this writing, only $23.8 billion has been raised through 79 IPOs. In 1999, $63.2 billion was raised through 518 deals. Still, the regionals seem to have gained a new advantage since Wall Street started a painful period of cutbacks and consolidation.

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