In what may end up being the busiest year for U.S. initial public offerings in a decade, an unlikely player has taken the top spot in underwriting: Barclays (BCS). The London-based bank is capitalizing on the return of private equity-backed firms to the public markets as companies including Carlyle Group and KKR unload some of the $1.6 trillion of assets they amassed during history’s biggest leveraged buyout boom. The performance also owes much to the effort for more than a decade by Ros Stephenson, co-head of corporate finance, to build the private equity business of Lehman Brothers, whose U.S. operations Barclays acquired in 2008.
Stephenson personally manages Barclays’s relationships with KKR and Warburg Pincus. Barclays, which ranked sixth in 2010, has overtaken Morgan Stanley (MS) and Goldman Sachs (GS) in the value of deals done by landing some big underwriting assignments from buyout firms. The bank has underwritten 13 initial public offerings in the U.S. this year through July 12 for a total value of about $12.1 billion, giving it 15 percent of the market, according to data compiled by Bloomberg. Buyout firms “have been an important driver of the market, and we have effectively covered this sector for a long time,” says Stephenson, who helps pitch IPOs with Larry Wieseneck, global head of capital markets. “You put those two together and the math works out.”
Companies backed by private equity firms have accounted for about 80 percent of the funds raised in U.S. IPOs this year, the most since at least 2006, according to Ipreo Holdings, a capital markets data and analysis firm. Barclays underwrote the two largest deals—the $4.4 billion IPO of HCA Holdings (HCA) and the $3.3 billion debut of Kinder Morgan (KMI). Both companies are backed by private equity firms: HCA is partly owned by KKR and Bain Capital; Kinder Morgan is partly owned by Carlyle Group.
Barclays Capital, the investment banking unit of Barclays, generated about $143 million of fees from U.S. IPOs through July 12 and was credited with underwriting $3.39 billion of IPO shares, earning an average fee of 4.24 percent, according to estimates compiled by Bloomberg. That’s more than the estimated $107 million in fees Barclays earned in all of 2010. Still, Barclays has earned less underwriting U.S. IPOs this year than second-place Morgan Stanley, according to the data, which shows the New York-based bank has made $161 million underwriting $2.8 billion of shares for an average fee of 5.75 percent. IPOs of companies owned by buyout firms, also called financial sponsors, typically pay lower fees than other IPOs because of the larger size of the offerings.
While Barclays has excelled at bringing private equity-owned firms public, it isn’t doing as well with Internet companies. The firm wasn’t part of offerings by Pandora Media (P), LinkedIn (LNKD), and HomeAway (AWAY), which went with Morgan Stanley. Bankrate, the online provider of interest-rate information, chose Goldman Sachs. Barclays has helped lead one Internet IPO in the U.S. this year, for 21Vianet (VNET), the Beijing-based Internet data center operator, and will help underwrite the debut of online game developer Zynga. “Morgan Stanley and Goldman Sachs still carry more cachet among the growth companies” and with the venture capital investors who back them, says Scott Billeadeau, who helps oversee $18 billion at Fifth Third Asset Management.
“We’re going to play very aggressively” to win technology and Internet IPOs, says David Erickson, global co-head of equity capital markets. So far this year, Barclays is No. 1 in U.S. technology IPOs, after handling the share sale by private equity-backed Freescale Semiconductor (FSL).
Stephenson says buyout firms will continue to be a driver of U.S. IPOs. At least 12 private equity-backed companies may complete U.S. IPOs worth a total of about $5 billion later this year, according to filings with the Securities and Exchange Commission. Barclays is already signed up to underwrite at least seven of those.