Boutique investment bank Rodman & Renshaw is so certain its DirectMarkets electronic follow-on issuing platform will succeed that it plans to change its name to DirectMarkets. “Rodman & Renshaw management realized that this was one of the last holdouts for some large innovation through technology,” says Kevin Lupowitz, CEO of the firm’s DirectMarkets Group subsidiary.
The new business seeks to remove investment banks from the process in which publicly traded companies make follow-on offerings of their stock by connecting companies and institutional investors directly via the DirectMarkets platform, allowing the companies to pay trading commissions rather than costlier investment bank fees.
DirectMarkets will leverage Rodman & Renshaw’s existing client base of issuers and institutional investors to provide the platform’s initial liquidity, Lupowitz says.
Companies will enter details of their follow-on offerings into a browser-based interface that employs a secure Internet connection. Investors can respond with offers, which DirectMarkets will present to the corporate issuer as a consolidated book. Companies can negotiate more complex deals in one of the platform’s secure online dealing rooms.
Liquidnet, an alternative equity trading platform, has facilitated a couple of follow-on offerings, says Steve Greenblatt, Liquidnet’s head of equity capital markets and issuer services. But Liquidnet charges companies the typical investment banking fee, since it takes underwriting risk, he says.
Companies will pay DirectMarkets a subscription fee for access to the platform as well as for other investor and press relation services, such as publishing company videos and press releases.
Industry experts are split on DirectMarkets’ prospects for success.“Like many breakthroughs, this one is obvious as soon as someone points it out,” says Philip Lawton, a senior analyst at research firm Aite Group. “To identify buyers and handle the issuance, investment banks typically ask for 3% to 10% of the face amount of the issue, as well as warrants. If DirectMarkets can do this at a discounted fee, the corporations will benefit at the expense of the investment banks.”
David Easthope, research director at research firm Celent, doubts the investment banks will go quietly. “Issuers may find investment banks pushing back when they seek M&A or debt-raising services,” he says.
For a look at attempts to minimize the cost of stock repurchases, see Saving Bucks on Buybacks.