In The News

IPO Newcomer Wants Piece of Action

Reuter's
by Steve James

Sunday, April 04, 2004 - NEW YORK (Reuters) - When Oasis Semiconductor Inc. launches its initial public offering in a month or so, it will mark the IPO debut of a new underwriter trying to break the stranglehold of the big-name Wall Street titans.

America's Growth Capital, in business only since last August, is also trying to break the mold for investment bankers, by focusing on companies with smaller capitalizations and offering research without buy, sell or hold ratings.

The Boston-based "boutique investment bank" offers a full array of services from PIPEs (Private Investment in Public Entities) to Mergers and Acquisitions and IPOs and follow-ons.

"We believed there had to be a better way of doing things," said founding partner Benjamin Howe, a veteran of SG Cowen, one of the big investment banks that dominate the IPO underwriting field.

As Howe sees it, under the old way, firms going public are attracted to the Morgan Stanleys, the J.P. Morgans and the Credit Suisse First Bostons to do IPO deals mostly because of their reputations, the clout to attract investors and resources to back the offering.

"But the old companies had morphed into boutique investment banks from different functions," Howe said, noting that SG Cowen had a bond business with research capability.

"It's more balanced where the producers are owners. Here it's 95 percent," he said. "Also research is critical and should not be an appendage dictated to by the banking (side)."

Howe formed America's Growth Capital with Maria Lewis Kussmaul, who worked with him at Cowen for six years.

"NO BETTER TIME..."

"We talked about building a boutique banking business," he said. "We stayed in touch and at the end of '02 we decided there was no better time to do it and focus on small cap companies." They concentrate on the business services and technology sectors but are looking to expand into life sciences soon.

The company was launched in August with just the two of them. Now there are 40 people working at the firm and it just opened an office in San Francisco, with one planned for New York later this year and in Europe next year.

Howe said there are some 3,300 companies listed on the Nasdaq but 3,000 of them have capitalization of less than $2 billion. "That's our market, we write the research, do the M&A deals; it's a huge market opportunity which is not served if there is only a plum deal to do."

Kussmaul at America's Growth Capital said, "We consider ourselves domain experts.

"Our research comes with an understanding of industry concepts, an understanding of what the key guys are doing. Every word that a Cisco utters is transcribed, but our research understands what is happening with the private companies."

She said its analysis addresses the question: 'What is this company worth today?' and arrives at an intrinsic value that addresses the risk so a client can answer the question 'How much am I willing to invest?'

But America's Growth Capital does not rate stocks or give recommendations. "That doesn't mean we have no opinion, we are highly opinionated about the financials of a company and where the stock price is going," Kussmaul said. "But the concept of target prices? With uncertainty over the (presidential) election or risk of terrorist attack, that does not make any sense.

"DIALOGUE WITH INVESTORS"

"The transparency of our models gives us the basis for dialogue with investors," she said. "Most analysts focus on big names and that's of no value because they are not down in the weeds with the investor. I know about the large companies and the threats to them because I know the private companies."

So far, America's Growth Capital is "cash-flow positive," said Howe, after a $24 million PIPE for TippingPoint Technologies (TPTI.O), a $60 million follow-on for NMS Communications (NMSS.O) and several M&A deals.

Oasis, which expects to list on the Nasdaq under the ticker symbol OASI, will be its first IPO. America's Growth Capital is underwriting, along with two of the Wall Street "old boys," J.P. Morgan and Merrill Lynch.

As for the IPO market now, Howe is bullish, noting that the 70 filings in the first quarter were the most for any quarter in three years.

"Assuming geopolitical factors in the U.S. do not destabilize the capital market, we should see the IPO market chug upward," he said. "It's very strong now, an extremely robust market. A lot of companies want to go public after three years of holding back."

With Passover and Easter falling this week, the IPO market calendar is empty.