Morgan Stanley’s bankers tap cash spigot for IPO dominance

Bloomberg

Morgan Stanley just beat JPMorgan Chase & Co and Goldman Sachs Group Inc for a second straight year in one of Wall Street’s most competitive businesses — and it’s poised to win again in 2019. Its secret: Quirky dealmakers wielding a spigot of private money.
The bank is the world’s top stock underwriter, a title that in recent years has shifted between JPMorgan, Goldman and Bank of America Corp until Morgan Stanley narrowly claimed it in 2017, according to data compiled by Bloomberg. In coming weeks, Morgan Stanley is set to handle one of this year’s marquee deals, the initial public offering for Uber Technologies Inc, making it even harder for competitors to catch up.
While the firm’s success in 2018 was fuelled in part by stock sales for companies abroad, including in Asia, the rainmaker to watch this year is Michael Grimes, who’s based in Silicon Valley as co-head of the bank’s technology franchise. He and colleagues have been tending relationships with a slew of big tech firms heading to market, such as Palantir Technologies Inc, by helping the ventures tap into the bank’s wealthy clientele and sovereign wealth funds for funding, giving their businesses more time to mature before going public.
“As many of the unicorns are staying private longer, they’ve got more rounds of private financing,” said Jay Ritter, a professor at University of Florida’s Warrington College of Business. That gives an advantage to Morgan Stanley, which has arranged much of that funding, he said.
Morgan Stanley was among advisers on the year’s biggest tech deal, guiding Red Hat Inc on its sale to International Business Machines Corp for $33 billion in cash — a 63 percent premium to the target firm’s closing price.
Debt expertise helps too. Morgan Stanley steered Uber through its first high-yield bond sale and helped WeWork Cos. borrow more than $700 million through an offering led by JPMorgan.
Morgan Stanley generated $1.4 billion in equity underwriting revenue in the first nine months of 2018, compared with $1.3 billion at Goldman. That figure also includes follow-on offerings and fees associated with deals in which Morgan Stanley was not the lead underwriter. JPMorgan and Goldman Sachs had traded the top spot for most of this decade until Morgan Stanley surpassed them in 2017.
To be sure, in North America, where regulatory filings usually designate a “left lead” bookrunner, Goldman’s name most frequently filled that space in 2018, a sign that it’s at the head of those underwriting syndicates and may pocket richer fees. And both Goldman and JPMorgan have major deals lined up for 2019, too. Slack hired Goldman Sachs to be its lead underwriter for an IPO that could set a valuation surpassing $10 billion, and Lyft has asked JPMorgan to run its debut.
Both appointments followed long courtships.