From Beer to IPO Stardom
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Last week, the IPO market demonstrated that there is seemingly endless liquidity. There were two mega IPOs: UPS, which raised $5.47 billion and Charter Cable, which raised $3.23 billion. In fact, UPS had demand for over 1 billion shares of its stock.
With such demand, the IPO market should be very strong next year, which is good for Net companies, which have a voracious appetite for capital. But it is also good news for investment banks. One that stands to be a beneficiary is Wit Capital.
The company is the pioneer in online investment banking. Its founder, Andrew Klein, was a securities attorney who got the entrepreneurial itch when he decided to start his own microbrewry. However, he had much difficulty raising money from traditional sources, so he decided to do his own IPO. But he did not use a normal distribution channel; rather, he used the Internet. It was 1995 and he had made history.
Interestingly enough, the beer industry was not as attractive as the emerging online IPO market. So, he created Wit Capital.
It helps to provide after-market support for public companies so Wit Capital has been shrewdly purchasing marketshare with its stock. Key to any investment bank is a high-quality research department, so the company purchased SoundView Technology, a leader in public company research, especially in Internet sector, for $320 million.
The acquisition will mean 44 more research analysts atop Wit Capital's 14. There will be coverage of about 240 companies. There will also be an additional 23 investment bankers, who handled 31 IPO deals this year. Year to date, SoundView had $100 million in revenues and net income of $16 million, which compares to $60 million and $2 million in 1997, respectively. As an added bonus, note that Wit Capital's losses will shelter SoundView's profits from taxes.
Wit Capital has some shrewd investors. Of particular importance is Goldman Sachs, which has a 20 percent stake. This relationship has resulted in strong deal flow.
Overseas, Wit Capital is expanding by pursuing a partnering strategy. For example, Wit Capital Japan raised $30.3 million in its second round (the first round was $10.1 million). Wit Capital Japan is a joint venture with Mitsubishi and Trans Cosmos. The joint venture will provide such things as research, capital raising and IPO services, as well as the establishment of an online brokerage firm in Japan.
There is competition, such as from DLJ Direct, E*TRADE and Discover Brokerage. What's more, yesterday there was announcement to form a new online investment bank, involving Schwab, TD Waterhouse, Ameritrade, Kle iner Perkins, Benchmark Capital and Trident Capital.
But the competition validates the concept. Most importantly, Wit Capital has been able to effectively create a unique, pure Net investment banking brand, which is growing stronger and stronger.
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