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Bigger IPOs in '18 can give more bounce to FIG rebound

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Bigger IPOs in '18 can give more bounce to FIG rebound

The number of U.S. financial institution IPOs rebounded in 2017 after a dismal 2016, and some sizable transactions are on the horizon for 2018.

In 2017, the number of U.S. financial companies completing initial public offerings more than doubled year over year to 31 from 12. The gross proceeds, excluding overalloments, from the transactions increased 49.9% in the same time frame to $2.82 billion, according to S&P Global Market Intelligence data. However, the average size of financial institution IPOs in 2017 was just $91.1 million, 57.0% lower than the average financial IPO size since 2013.

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David Ethridge, PwC's U.S. IPO services leader, noted that the financial institution space saw a healthy number of deals and capital raised during 2017, but the sector was lacking "big, chunky" IPOs, he said in an interview.

TPG RE Finance Trust Inc, a mortgage REIT, has completed the largest U.S. financial IPO in 2017, with a $220.0 million deal. Already 2018 is expected to see at least two larger deals come to market.

The separation and IPO of AXA Equitable Holdings Inc., which includes AXA's U.S. life, annuity and investment management businesses, could raise as much as $3 billion, according to Renaissance Capital LLC. The mutual conversion space also has a large IPO in the pipeline with Columbia Financial Inc., which could raise close to $500 million.

So far in 2017, PCSB Financial Corp. recorded the largest conversion IPO with its $178.3 million deal. Conversion activity boosted the number of financial institution IPOs in 2017, with 11 closing in the year. Of those, two are in the insurance space, while the rest are thrifts.

The number of total depository IPOs jumped in 2017 to 19, from eight in 2016. Apart from conversions, the bank IPO resurgence is expected to continue if valuations remain favorable and the Trump administration's policies are effective.

The financial technology sector did not see much pickup in IPO activity in 2017, with only two completed deals, up from one in 2016. A total of 31 financial technology IPOs priced from 2013 through 2015. At this point, not many U.S. financial technology company IPOs are slated for 2018, said Josef Schuster, founder of IPOX Schuster LLC, which offers index products that track IPOs and spinoffs. He added that investor interest has dampened in the space thanks in part to the stock price performance of LendingClub Corp., which has dropped some 22% in 2017, and even Snap Inc., down more than 40% from its March 3 closing price.

"Investors like to gravitate toward older, more sustainable business models," Schuster said in an interview.

Companies with a longer track record, as opposed to venture-backed startups, have been finding more support from investors after their IPO, Schuster said. One such example is Hamilton Lane Inc., which launched in 1991 and went public in 2017. As of the Dec. 21 close, Hamilton Lane has more than doubled its $16 IPO per-share price.

Other financial stock prices that have performed well since their 2017 IPOs include PCSB Financial, up 97.1%; NI Holdings Inc., up 72.0%; and HV Bancorp Inc., up 51.50%, as of the Dec. 21 close. But not all the 2017 financial IPOs have run up. Share prices have fallen for Sachem Capital Corp., down 21.8%; Tremont Mortgage Trust, down 26.6%; and Granite Point Mortgage Trust, down 6.6%.

Some stocks trading down is not always a bad sign for the IPO market. Ethridge said investors treating stocks differently is an indication that the IPO market is a rational one.

"If they were all up and to the right, in terms of their trading, I think that's more an indication of bubbly types of markets," Ethridge said.