When Cowen & Company is Lead Left, IPOs Tend to Outperform
When it comes to measuring the success of an IPO, there is often a swirl of attention around the first few hours and days of trading. But most stakeholders involved probably care much more about a company’s sustained stock-price performance. What if the investment banks that underwrite deals were ranked accordingly?
Consider the six-month stock-price performance for U.S. IPOs priced since the beginning of 2014. That data set, compiled by Dealogic, can be used to rank so-called lead left underwriters, the Wall Street term for the investment bank chosen to lead an IPO process because its name appears on the far left of an offering prospectus.
Topping the lead left league table is Cowen & Company, which led 21 deals. On average, the companies it took public saw their shares rise 48{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} from their IPO price over six months. Stripping out investment banks that only managed a couple of deals or focused on very small transactions, there are some other impressive firms high on the list, with J.P. Morgan posting an average 34{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} return on 103 deals and Jefferies with 24{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} on 64 transactions. Further down were other “bulge bracket” firms such as Goldman Sachs, which averaged 23{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208}, Barclays at 21{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208}, and Morgan Stanley coming in with 12{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208}.
Cowen’s top performance after six-months is not an anomaly: Its deals outperform for much longer. Taking the same deals since 2014 to current prices, Cowen is near the top of the list with an average 96{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} return as lead left. That’s a close second place behind J.P. Morgan, whose average return is just under 100{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208}.
Wall Street league tables in everything from IPOs to M&A typically focus on one simple measure: deal volume. With IPOs in particular, J.P. Morgan, Morgan Stanley, Goldman Sachs, and a few others investment banks have dominated that list for many years.
In turn, those firms frequently win major IPO mandates when companies decide it’s time to go public. For many companies that have never been through the process, the “safe” choice has obvious appeal. If something goes wrong, a CEO is unlikely to be blamed for hiring a white shoe firm.
But for companies that conduct a thorough selection process for a lead left bank, due diligence may include deeper questions about an investment bank’s abilities, including a review of past performance. New issuers will also frequently reach out to large investors and ask for their advice.
“We are proud of the outcome of our deals,” Cowen Co-President Larry Wieseneck told IPO Edge in an interview. “We can’t afford to be average so it’s a necessity.”
Mr. Wieseneck, who previously spent 17 years at Lehman Brothers and Barclays, in roles including Co-Head of Securities and Chief Strategy Officer, said Cowen chooses IPO candidates with characteristics that support long-term success.
“The first issue we consider is whether we think the company going to make a difference,” he said. “Is it doing something better than competitors? Does it have a cost advantage?”
Another factor is the strength of company’s management team, Mr. Wieseneck said. The IPO marks a time when companies generally go through a transition, and it’s critical to have the right people in place to guide a business under the scrutiny of public-market investors.
Cowen’s recent notable lead-left deals include Canadian cannabis company Tilray (ticker: TLRY), which priced at $17 last year and now trades around $47. Cowen also led the IPO of payments company i3 Verticals (ticker: IIIV), which priced at $13 a share in June 2018 and now trades at $30.
Those deals reflect a move by Cowen to move into new industries. The firm has traditionally been strong in areas such as healthcare, technology, and retail, but cannabis and payments are more recent areas of focus.
When Cowen moves into new industry groups, it adds both bankers and research analysts in lockstep. While research is theoretically written for the benefit of investors, it’s also something that helps Cowen with corporate clients, Mr. Wieseneck said.
“The market knows that we’re good at quality execution – we always align research and banking,” he said. “That helps us do a better job of picking good companies.”
The emphasis on high-quality research helps set Cowen apart from some bulge bracket firms, which have more complex business models and increasingly neglect research departments. “Bigger firms have a harder time figuring out how to harness equity research, but it’s simple for us,” Mr. Wieseneck said.
Of course, Cowen hasn’t been lead left on as many deals as the bulge bracket firms, which were selected for the largest IPOs in recent years such as Lyft, led by J.P. Morgan, Uber, led by Morgan Stanley, and Pinterest, led by Goldman Sachs. And it’s arguably harder to generate massive stock-price returns from larger companies when they start out with such large market capitalizations.
But even when the lead left assignment goes to the bulge bracket, Cowen is very frequently on the deal as a co-manager, indicating its expertise is well recognized. Since 2017, Cowen has been a joint bookrunner with J.P. Morgan 52 times, with Goldman Sachs 34 times, and with Morgan Stanley 22 times.
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