Piper Jaffray IPOs Rosetta Stone and BPI

Last Friday I met Andrew Duff -- CEO of Piper Jaffray -- while attending the Board of Advisors meeting for the UST MBA program. Our conversation quickly turned to the recent "thawing" of the IPO market, as evidenced by the recent (week of April 13) IPOs of both Rosetta Stone (RST) and Bridgepoint Education (BPI).

For RST, Piper acted as co-manager of the offering alongside Robert W. Baird. Assuming the standard management fee of 20% of the 7% gross spread, Piper hauled in 0.7% of funds raised for RST (20% of 7%, split two ways). On the $112.5mm raise, then, Piper received an estimated $787,500.

For BPI, Piper acted as co-manager alongside Signal Hill and BMO Capital Markets. Assuming the standard management fee of 20% of the 7% gross spread, Piper hauled in 0.47% of funds raised for BPI (20% of 7% split three ways). On the $202.5mm raise, then, Piper received an estimated $945,000.

Being a "manager" of an IPO is different than being an "underwriter". The manager assembles the syndicate of investment banks to underwrite the offering, while the underwriter guarantees the issuer that it will purchase an agreed number of shares at an agreed price. The underwriter therefore assumes the pricing risk inherent in the transaction (assuming it's a "firm underwriting", as most are).

Norwest Equity Partners had a 40% stake in RST -- I wonder how this local connection affected/enabled PJ to play a managing role in this successful issuance.

Note the bunching of offerings that has recently occurred in the for-profit post-secondary education sector. Even though the IPO market has been non-existent, BPI just IPO'd and in November Grand Canyon Education (LOPE) also did so. As HBS' I-Banking prof Josh Lerner says, "the bunching of offerings is even more dramatic when patterns are examined on an industry basis." p400.

This sector is booming given its counter-cyclical nature, demographic trends, and the education income gap. I recently convinced the Aristotle Fund to invest $60K of our $1.8mm endowment in Strayer Education (STRA) at $157/share.