BrokerDealers Help Mint Billionaires in 2014; Greed Is Good, Funding is Fun

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startup valuationsBrokerdealer.com blog update courtesy of extracts from 29 Dec edition of the Wall Street Journal, with reporting by Evelyn M. Rusli

As brokerdealers, investment bankers, institutional investors and entrepreneurs “close the books” on 2014, all will agree this has been a remarkable year in which “billion dollar valuations” have seemingly been the norm. Most notably, technological start-ups have enjoyed increasing valuations with each subsequent round of financing from private equity and venture capital firms, albeit many financial industry professionals are wondering whether those valuations can carry over when these private companies embark on initial public offerings (IPOs).

While “Wall Street” protagonist Gordon Gekko coined the phrase “Greed is Good!,” the Broker-Dealers mantra for 2014 was “Funding is Fun!”

Below please find highlights of the WSJ article.

Chinese smartphone maker Xiaomi Corp. is now officially the world’s most valuable tech startup, worth $46 billion—the exclamation point on a year of extraordinary valuations. Continue reading →

New IPO makes Brokerdealers Hungrier for 2015

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timthumbBrokerdealer.com blog update courtesy of Forbes.

Brokerdealers everywhere have rejoiced, Shake Shack, a newer chain restaurant, recently applied for an IPO and set to go public in 2015. Shake Shack is known for its fresh cut fires, 100% all beef burgers and hot dogs, and most of all its delicious shakes. The chain has been growing ever since its opening in New York City in 2000 and now has 63  locations open  worldwide.

Shake Shack, the New York-based burger chain created by famous restaurateur Danny Meyer, is set to go public in 2015, after filing for an IPO Monday.

The chain, which plans to list on the New York Stock Exchange under the symbol “SHAK,” details a rapid growth effort that has seen an increase from a single shack in Manhattan’s Madison Square Park to 63 locations worldwide today (about half are owned by the company, with the remainder operated by licensees.”

Restaurant concepts have proven a mixed bag in the market, as investors pore over growth prospects looking for chains that could prove as lucrative as Chipotle Mexican Grill CMG -1.73%, which has returned more than 1500% since being spun out of McDonald’s MCD -0.87% in 2006.

IPOs from companies like Noodles & Co, Potbelly and Zoe’s Kitchen were greeted with immense demand, though both stocks have taken their share of hits since debuting. More recently, burger chain Habit Restaurants has surged more than 80% since its mid-November IPO.

At a time when many legacy restaurant operators are struggling to find growth — McDonald’s certainly among them — younger chains with smaller footprints and more runway for expansion are proving attractive.

Shake Shack reported $140 million in system-wide sales for its 2013 fiscal year, up from $81 million the prior year, with 56% of revenue from its domestic, company-owned locations. Total revenue, which only includes licensing revenue from non-owned locations, was $83.8 million in 2013, up 41% from the prior year. Net income declined to $3.5 million, from $4.4 million the year before, due to a sharp increase in expenses, largely attributable to higher food costs and costs associated with opening new locations.

Growth is likely to come both abroad and at home. Aside from New York, with 15 locations, no U.S. state has more than four Shake Shacks.

“Fast-growing restaurant concepts are still hot,” says Paul Bard of IPO research firm Renaissance Capital. “Habit opened up 100% so comparable companies will see that as an opportunity and there’s a whole crop of fast-casual burger chains out there.”

Bard also points to chicken chain Bojangles and Focus Brands, a franchiser of Cinnabon and Carvel, as potential names to watch for on the 2015 IPO market as investors continue to look for growth in the consumer space.

The U.S. economy’s slow recovery and improved consumer spending is certainly a help to restaurants, but Shake Shack’s filing notes that the company’s initial expansion occurred in a far more difficult environment.

“We’ve never believed that Shake Shack only thrives in a down economy, but growing from one to 15 Shacks smack dab in the heart of the recession told us that we also don’t need a robust economy to build our business,” Meyer and CEO Randy Garutti wrote in a letter to prospective shareholders.

Meyer is listed among the shareholders who control at least 5% of Shake Shack’s shares, along with affiliates of private equity firm Leonard Green, Select Equity Group, Alliance Consumer Growth, and Jeff Flug, president of Union Square Hospitality Group, the parent company of Meyer’s other restaurant ventures, and a Shake Shack board member.

The language in the Shake Shack filing also reveals the controlling hand Meyer will maintain at the company post-IPO. He and his affiliates will be entitled to nominate a certain number of directors — five as long as he maintains 50% of his post-offering holdings, and sliding down from there — and must grant approval for a variety of corporate actions, including a sale of the company, firing or hiring of a new CEO or a change in board size, so long as the group keeps 10% of its post-IPO shares.

 

For the original Forbes article, click here.

 

Expert Lawyer Says SEC Broken Windows Approach to Enforcement is Broken

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Brokerdealer.com blog update courtesy of extracted opinion piece published Dec 22 by Pensions & Investments Magazine and submitted by Andrew Stoltmann, a partner at Chicago-based Stoltmann Law Offices PC, who represents investors in securities litigation and FINRA arbitration claims.

brokenwindows1“..The Securities and Exchange Commission is unfortunately pursuing a fundamentally flawed strategy to police the capital markets and protect investors.

Last year, SEC Chairwoman Mary Jo White disclosed she intends on pursuing a “broken windows” strategy for securities enforcement. The SEC intends on prosecuting even minor violations of the federal securities laws in order to prevent wrongdoers from engaging in even more egregious conduct.

The theory is that when a window is broken and someone fixes it, it is a sign that disorder will not be tolerated. When a broken window is not fixed, it is a signal that no one cares, and so breaking more windows, and more serious crime, will follow. This approach is the one taken in the 1990s by New York City’s then-Mayor Rudy Giuliani and Police Commissioner Bill Bratton back when Ms. White was the U.S. attorney for the Southern District of New York, which includes Manhattan.

Unfortunately, the “broken windows” strategy championed by Ms. White is fundamentally flawed. By going after minor offenses, it artificially inflates the SEC’s enforcement actions and gives the appearance of being tough on bad actors. In reality, it is a mirage. Continue reading →

BrokerDealer-Backed Consortium That Seeks to Boot Bloomberg Chat Adds to IT Arsenal via Sweet Sounding Acquisition by Supplanter Symphony Communications

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BrokerDealer.com blog update courtesy of prior reporting here and extract from Dec 1 WSJ story by Justin Baer.

chat serviceAn instant-messaging software company that has drawn investments from Goldman Sachs Group Inc. and other big banks signed a deal to buy a chat business from a potential rival.

Symphony Communication Services LLC acquired an arm of Markit Ltd., a financial-data firm that went public earlier this year, the companies said.

The purchase, Symphony’s first since a group of 14 banks and money managers helped start it in October, underlines how Wall Street has quickly coalesced around the Silicon Valley startup as a solution to one of the industry’s most pressing technology challenges: finding a way for employees to communicate with one another, instantly and securely.

It also represents an exit for Markit, which a year ago had launched its own messaging initiative for bankers and traders. The sale isn’t expected to have a material effect on Markit’s results. Fewer than 20 Markit employees are relocating to Symphony as part of the sale of the unit, known as Collaboration Services, a person familiar with the deal said. Terms aren’t expected to be disclosed when the deal is formally announced Tuesday.

David Gurle, Symphony’s chief executive, said in an interview that the company had considered building its own directory before reaching out to Markit in recent weeks to discuss a potential deal. In buying Markit’s business, Mr. Gurle said Symphony probably saved 18 months of development time. “They had a capability we would have ordinarily had to build ourselves,” Mr. Gurle said.

The transaction includes the software that powers Markit’s directory service, which functions as a centralized “phone book” for financial firms that can be customized to meet compliance rules.

Symphony’s emergence may help loosen Bloomberg LP’s grip on the securities industry. The financial-data company’s chat services remain ubiquitous on trading floors. But the price of a Bloomberg terminal, about $20,000 a year, has grated on some finance executives.

If Symphony’s platform spreads quickly through Wall Street, bank executives have said, it could pressure Bloomberg to relent. A Bloomberg spokesman didn’t immediately respond to a request for comment. Bloomberg’s news service competes with Dow Jones & Co., publisher of The Wall Street Journal.

On Monday, Mr. Gurle said the messaging platform is still on track to launch in July.

Led by Goldman, a group of financial firms invested $66 million in Symphony. The group, in turn, acquired Perzo Inc., a Palo Alto, Calif., company founded in 2012 by Mr. Gurle. Goldman, which led the investment among the financial firms, contributed its own internal messaging developments to the venture.

Founded more than a decade ago, Markit had drawn investments from financial firms such as J.P. Morgan Chase & Co., Bank of America Corp. , Deutsche Bank AG and Goldman. All four of those banks were among the firms that have backed Symphony.

Markit sought to allow financial firms’ in-house messaging platforms to communicate with one another, he said. Symphony and its backers are betting that financial-services firms need a better system than they could develop on their own.

To read the complete coverage, please visit the WSJ via this link.

Brokerdealers Hold Fate of New Active ETFs

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Brokerdealer.com blog update courtesy of extract from Investment News.

NextShares is a product that some want to eventually replace mutual funds. NextShares combine characteristics of mutual and exchange-traded funds. Like mutual funds, investors purchase shares in the fund at a price equal to the value of their underlying securities, plus a transaction fee. Like ETFs, they trade on exchanges and could benefit from the tax and other cost efficiencies associated with those products.InvestmentNews

For years, backers of NextShares have been working to get approval and earlier this week, securities regulators finally granted approval. Now it will have to convince Brokerdealers and financial advisers that it is in their interest to supplant a product responsible for a healthy portion of their current revenue. The backers of NextShares want to cause the extinction of mutual funds, a lucrative product for broker-dealers.

“A lot of the firms we’ve spoken to are not really sure if they want to offer it at this stage,” said Bharat Sawhney of Gartland & Mellina Group, a consultant to broker-dealers on product offerings, strategy and technology platforms. “One of the bigger questions the firms have is if it will cannibalize their existing business.

Investors will need to be informed by broker-dealers of the unique qualities of the funds when they trade, and they will place exchange orders in a way that differs from stocks or ETFs.

In order to commit to NextShare and the changes it would bring, broker-dealers will need to see that consumers — both advisers and their clients — actually want the products, which are also known as exchange-traded managed funds. If they succeed in that regard, it wouldn’t be the first time client demand trumped the preferences of broker-dealers.

If you want a Brokerdealer that will commit to NextShare then now is the time let your Brokerdealer know this is what you want or find a Brokerdealer that will.