Banks Earn $ 650 Million In Fees And Stock Gains From IPO Flurry

Traders work during the IPO of Chinese ride-sharing company Didi Global Inc on the floor of the New York Stock Exchange (NYSE) in New York City, USA, June 30, 2021.

Brendan McDermid | Reuters

From the Krispy Kreme to China’s Didi Chuxing, the busiest week for US IPOs in 17 years produced a windfall for the major Wall Street investment banks.

A cybersecurity company, drug developers and a Turkish e-commerce platform took part in the action. At least 14 companies raised $ 100 million or more in deals on the Nasdaq and the New York Stock Exchange, the busiest tranche for debuts since 2004.

In total, underwriters generated nearly $ 400 million in fees for helping with IPOs. They’re sitting on an additional $ 259 million in paper earnings as of Friday’s close, assuming they exercise their options to buy all of their assigned shares at the IPO discount.

The pace of the offers underscores the demand for growth and shows that IPOs remain the preferred route to market despite the rise in direct listings, which have no subscribers and have much lower advisory fees. It’s a very lucrative business for Wall Street and no slowdown is in sight.

Robinhood submitted its IPO prospect on Thursday and it is set to be one of the biggest offers of the year. Rising demand for crypto assets led to a quadruple of first-quarter revenue to $ 522 million, while the company’s loss rose to $ 1.4 billion in part due to an emergency fundraiser tied to the GameStop business mania.

The stock trading app will likely get a higher valuation in the market, while at the same time playing a larger role in the IPO boom by giving retail investors a way to invest in deals that historically targeted the big boys. institutions. Robinhood is reserving up to 35% of its IPO shares for clients.

“I think this will be one of the biggest meme actions of the future,” Thomas Peterffy, president of Interactive Brokers, told CNBC’s “Squawk Box” on Friday. “They have negative equity, they have approximately zero earnings, and they are growing rapidly. So it’s the kind of thing the market seems to like lately. I am looking forward to them entering the community, attracting more and more people to the market. “

Goldman, Morgan, JPM the big winners

In last week’s IPOs, underwriting fees ranged from 2% of the total amount raised, in the case of massive financing from private transport company Didi, to 7% for smaller deals such as company offers. CVRx, Aerovate Therapeutics and Acumen Pharmaceuticals.

Goldman Sachs and Morgan Stanley, as usual, earned the highest fee revenue by serving as lead managers for Didi’s IPOs and cybersecurity software provider SentinelOne, the two biggest offerings of the week.

Morgan Stanley and JPMorgan Chase were the primary underwriters in the IPO of Turkish online shopping company D-Market Electronic Service & Trading, legal services site LegalZoom, and Krispy Kreme, which were the third, fourth and fifth largest offering for the week, respectively.

The donuts are sold at a Krispy Kreme store on May 5, 2021, in Chicago, Illinois. The donut chain reported yesterday that it plans to go public with the company.

Scott Olson | fake images

In addition to advisory fees, underwriters also make money from IPOs by having the option to buy shares at the offer price so that they can benefit from the pop that is normally produced. Not all of last week’s offerings had large initial rallies, but they all generated profits for banks that were in a position to receive an allotment.

Even with Didi’s modest earnings in its first three days of trading, the 11% rise in the shares means that underwriters are up $ 66 million if they exercise their options. Paper earnings on SentinelOne stand at $ 46 million after shares jumped 27%. The manufacturing market Xometry was up 58% in three days, producing potential earnings so far of $ 26 million, while airport security company CLEAR has generated a rise of $ 34 million after jumping 53%.

For Morgan Stanley and JPMorgan, the record IPO tranche comes a week after the two banks led the IPOs for healthcare technology company Doximity and cloud software provider Confluent.

Those two offerings paid combined underwriting fees of $ 74.7 million, and the Doximity deal included the allotment of shares that produced $ 83 million in earnings based on the initial public offering. However, Confluent took the unusual step of not issuing underwriters the option to buy at the IPO price.

The company highlighted the potential importance of that decision in the risk factors section of its prospectus:

“Without this option, underwriters can choose not to participate in certain transactions that stabilize, maintain or affect the market price of our Class A common shares, such as short sales, stabilization transactions and purchases to hedge positions created by short sales. , to the extent that they would have been involved in such transactions if we had given subscribers that option, “Confluent said.

Doximity CEO Jeff Tangney told CNBC’s Deirdre Bosa that while an initial public offering was the right choice for his company, he is pleased to see the rise in direct listings and special-purpose takeover companies ( SPAC) as alternatives because competition is reducing costs.

Doximity paid a fee of 5.5% of the offer size, which is in line with this year’s average, but below the maximum rate of 7%.

“The economy improved us,” he said. “Banks are charging less and doing more, which is good.”

LOOK: The CEO of Doximity in the social network of doctors that goes public

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