The Registration System Breaks The "IPO Faith": The "Lost Way" Of Small And Medium-Sized Securities Companies To Survive And Switch To Boutique Investment Banks

In the face of the impact of registration system, the IPO market, which contains deeper changes, has forced small and medium-sized securities companies to change their original investment banking business.

The year 2020 just passed can be said to be a bumper year for IPO market. According to the statistics of PWC, 395 companies in the A-share market achieved initial listing in the whole year, with a total financing amount of 471.9 billion yuan, a new record of IPO Financing since 2011. The number of IPOs and the amount of financing increased by 97% and 86% respectively.

Among them, the science and technology innovation board and the growth enterprise market under the registration system are more fruitful. In 2020, 145 enterprises have been listed on the science and technology innovation board, and 107 enterprises have landed on the gem, accounting for 64% of the total number of initial listing in the whole market. In 2020, 7 of the top 10 A-share IPO financing amount will be monopolized by the science and technology innovation board. The impact of the registration system on the IPO market can be seen.

And when the new stock market is booming, the deeper changes in the market are taking place. Recently, some investment banks in the industry told reporters of the 21st century economic report that at present, funds tend to favor and embrace companies with large market value, "small tickets and tickets with general development potential are not attractive enough, and sales are more difficult.".

Under the pressure of the head brokers, the small and medium-sized domestic securities companies with investment banking equity business around small market value enterprises are also facing greater pressure.

"Under the registration system, the downward pricing or differentiation of new shares is an inevitable trend. The tickets in the hands of small securities companies are not so high-quality. In the future, they may not only worry about underwriting fees, but also have to make a question mark whether they can be issued successfully." There are small and medium-sized securities investment banking business related person in charge said.

IPO of small companies

"Recently, it's very difficult for small companies to find a way to invest in IPO projects. The enthusiasm for roadshows is not so high. Investment institutions will also ask more and more detailed questions, and sometimes they have to grind them to the end before they can be finalized." There are Beijing securities companies capital market department said.

"Not only is IPO, small market value company fixed increase is also relatively difficult, not sure." The relevant person in charge of the investment banking business of the above-mentioned small and medium-sized securities companies further said that "the IPO market has always had the phenomenon of 28 February and the mechanism of survival of the fittest, but the registration system has further strengthened this differentiation.".

He Nanye, an investment banker, said that the IPO roadshow stage of enterprises with small market value or relatively poor quality is "blocked", which is closely related to the registration system. At present, the number of new shares has increased significantly, the price earnings ratio has been liberalized, the differentiation of new shares has begun to increase, and the differences of follow-up trends of different stocks have gradually opened up. "Before the implementation of the registration system, the number of new shares issued by the company was small, and there was no worry about selling new shares. Moreover, there was a limit of 23 times P / E ratio, and there was certainly a boom in the listing and there was no differentiation." On the other hand, the A-share market is becoming more and more mature, gradually moving closer to the US and Hong Kong stocks, showing a trend of embracing core assets.

"The follow-up IPO of a shares will be the same as that in Hong Kong market. It is very difficult for small market value companies to issue, and the approval is useless." According to an investment bank of securities companies engaged in Hong Kong stock business, at present, the small market value stocks in the Hong Kong stock market are hot and low attention, and the liquidity is poor after listing. Because of this, similar companies are more dependent on investment banks to issue. "These companies have high issuance costs, some of which account for half of the total costs. In the future, the A-share registration system will also test the ability of investment banks to issue and underwrite. ".

Recently, Liu Xiaodan, former chairman of Huatai United Securities and known as the "Queen of mergers and acquisitions" in the industry, also said in public that "in the future, some companies with small market value may not be able to sell when they issue".

"The more small IPOs there are, the heavier the burden may be in the future." Liu Xiaodan pointed out that what we should do now is the size of IPO companies. The financing scale of the company's IPO is large. When the company's size reaches a certain level, it will also be the focus of investors in the future, "so don't care about the number of IPOs. We must look at the market value of the company after IPO."

Small and medium sized securities companies take the lead in pressure

From the current IPO pattern, the leading companies in the A-share market are mostly taken over by large-scale securities companies in the IPO stage. According to wind data statistics, from the beginning of 2020 to now, among the top 100 enterprises that raise funds in the A-share market, only 19 sponsors have small and medium-sized securities companies, and most of them are joint underwriting.

"In the future, it is certainly small and medium-sized securities companies that will face the difficulty of IPO issuance first. With the implementation of the registration system, the relatively poor quality of the company in order to ensure the successful issuance, the issuing price range will go down. The corresponding issuance scale will also decline, and the underwriting fee income charged according to the scale will decline. " Said the relevant person in charge of investment banking business of the above-mentioned small and medium-sized securities companies.

However, according to wind data, PE has not declined significantly under the current registration system. Taking the science and technology innovation board market as an example, the average p / E ratio of new shares issued on the science and technology innovation board is 59 times in 2019, and 50 times in the first half of 2020, and the average price earnings ratio of new shares has increased to 82 times since the middle of 2020.

"We can't see much difference in the current issue pricing. On the one hand, since the second half of last year, many companies with a P / E ratio of more than 100 times went public, and Funeng technology's P / E ratio was more than 1700 times. On the other hand, the IPO rhythm is still under control. However, the low attention paid to the roadshows of small projects has already reflected the market's view. At present, the performance of new shares after listing has begun to differentiate, and it will be gradually transmitted to the pricing end in the future. " Some senior investment banks said.

In fact, there are many feelings about the performance of new shares under the registration system in the primary market.

According to a person in charge of private equity institutions in Beijing, the price difference between the first and second tier markets of the science and technology innovation board and the growth enterprise market is gradually narrowing. "The performance of the new shares after listing is even more unexpected. The current share prices of the companies listed on the science and technology innovation board, which we invested in before the pre IPO, are close to our cost price."

The relevant person in charge of the investment banking business of a head securities firm in Beijing said that although the underwriting cost of a single project will be reduced with the pricing in the future, under the background of sufficient listing resources, income is not the main reason for the pressure on small and medium-sized securities companies. "In terms of labor cost, large projects will consume more, but the proportion is lower than the underwriting fee income. Under the registration system, the income pressure of small and medium-sized securities companies will certainly exist, but if the market is big enough, there will still be profits. "

But underwriting IPOs for small businesses faces greater challenges.

On the one hand, the IPO of enterprises will always seek high valuation and high pricing. If the price of enterprises with poor quality is too high, the success rate of IPO will be affected, "so customer satisfaction can not be guaranteed."

On the other hand, the person in charge said that due to the decline in underwriting fees for individual projects, small and medium-sized securities companies may be more inclined to sponsor more projects. "If we do more, the risk will be greater, and the risk of small projects will also be greater. For large projects, some things can be carried, and it is convenient to refinance after listing; for small projects, a little risk can not be carried, which may expose the previous events. "

The road of boutique investment bank

In the face of the impact of registration system, the IPO market, which contains deeper changes, has forced small and medium-sized securities companies to change their original investment banking business.

"It is an inevitable trend to narrow the equity price gap in the primary and secondary markets. The essence of the registration system is to give the pricing power to the market. In fact, securities investment banks should be like private equity institutions to "invest early and invest small.". Our goal is to lengthen the investment cycle and obtain higher return on investment. The purpose of securities companies is to cultivate more competitive companies to be listed on the market. " The person in charge of the above-mentioned private equity institutions said.

"This kind of cultivation should not be left to the investment banks, but should cooperate with the direct investment departments to do" sponsor + direct investment "and select the seeds that may grow into large companies." These small and medium-sized securities investment banks said.

Liu Xiaodan, who has been involved in the private equity market, also disclosed that he has postponed the listing time of the two investment projects. "I hope that enterprises can grow better and choose to be listed in the most appropriate time window, rather than rushing to securitize. Because the registration system and other reforms have made the listing process predictable, there is no need to rush away as in the past. ".

In the view of market participants, with the continuous promotion of the registration system, small market value companies that encounter more challenges in IPO will also turn to seek M & A opportunities. Liu Xiaodan pointed out that the prosperity of the M & a market will lag behind two or three years after the IPO outbreak.

"For example, in the United States, after the prosperity of the capital market, the number of mergers and acquisitions has increased significantly. At present, domestic small enterprises are still keen on independent listing. After measuring the advantages and disadvantages of listing and cost-benefit, the market will tell these small value enterprises that independent listing may not be the best choice. " The above-mentioned small and medium-sized securities investment banks said that domestic small and medium-sized securities companies can also create high-quality fa (financial advisor) to do leveraged M & A.

However, some senior investment bankers said that compared with the recommendation business of eating with license, FA has higher requirements on the ability of securities companies. "Many small and medium-sized securities companies can only write materials. Without license protection, FA business is very difficult to do."

Whether it is "sponsor + direct investment" or FA route, the boutique direction of investment banking business of small and medium-sized securities companies is in front of us. Just recently, deppon Securities said that it was necessary to build a boutique investment bank, enhance the risk control ability with the help of scientific and technological means, give play to the linkage advantage of "private placement + alternative" subsidiaries, and extend the full value business chain of securities companies.

Hu Xiang, a non bank analyst of Soochow securities, also pointed out that under the background of the construction of domestic multi-level capital market system, the development mode of institutional service business with transaction as the center will be more abundant. Large scale securities companies have outstanding competitive advantages in capital strength, risk pricing ability and institutional customer layout, and the industry concentration is high. However, at present, there is a lack of "small and sophisticated" Securities Companies in China. In the future, small and medium-sized securities companies can learn from the development experience of wealth management institutions, characteristic investment banks and trading market makers of American boutique investment banks to form a multi-level competition pattern.

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