Ryan Beck Files for IPO

Yet another investment bank has filed for an IPO. We previously saw Thomas Weisel go public. It is always interesting to ponder why an I-bank wants to go public. These are after all, some of the most lucrative businesses in the capital markets. They perhaps, some would argue, are the engine behind the liquidity of our markets. If you recall, a primary reason Weisel went public was to payback its bankers and partners who were loyal in the early 2000s as much of the technology business declined.

Similarly, in the Ryan Beck prospectus, they cite that common reason:

"We expect that our transition to a public company will enhance our ability to execute our growth and diversification strategy. We believe that as a public company we will have better visibility and broader access to capital. We also expect that it will enhance our ability to attract and retain high quality professionals by enabling us to offer them equity-based incentives linked directly to the success of our business."

Read in plain English - "We think that having stock will better publicize our company. We also need stock to better pay our bankers."

I actually think that is an OK reason to go public. At least they are being honest. The investment banking industry is fiercely competitive with boutique firms always trying to undermine the monopoly of the bulge bracket banks.

Who knows how the IPO will fare, but they have interesting numbers from a so-called "Investment Bank". They derive revenue primarily from three sources: Private Client, Capital Markets, Investment Banking. Of their $250 mm in revenue, $150 mm comes from Private Client, $50 m from Capital Markets, and $50 m from Investment Banking. So it is no surprise that this firm isn't listed on a lot of prospectuses or isn't often listed in M&A rank tables.

So Ryan Beck appears to make most of their money on trading commissions. This is not surprising given that they were initially founded by two bond traders, John Ryan and Roy Beck, as a bond-trading house. Despite their interesting history, if I were an "Investment Bank", I wouldn't want most of my money coming in from commissions. That is a tough business and as technology improves, those spreads are going to thin even more.