Sunday, 18 August 2019

US Mid-Market Equity House: SunTrust Robinson Humphrey

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Strength in the middle

Building an investment-banking platform from scratch is no mean feat. But SunTrust Robinson Humphrey has been able to do just that, creating a broad equity platform to mirror its corporate lending capabilities. The Atlanta bank is IFR’s US Mid-Market Equity House of the Year.

A few years ago, the management of SunTrust Robinson Humphrey realised that they did not have the investment-banking presence they wanted.

SunTrust was the 13th largest US bank by assets in 2012, but while it took part in 30 equity underwritings that year, it was bookrunner on only four. The lending business was essentially generating an annuity of co-manager mandates on equity deals, but management wanted to do better.

Fast forward four years to 2016, and STRH was a bookrunner on 24 of the 68 deals on which it served as underwriter – good for 14th place in the Thomson Reuters US ECM league table. Among other deals, the Atlanta bank was bookrunner on much-coveted IPOs for healthcare software company Cotiviti (US$246m) and elf Beauty (US$141.7m).

The impressive turnaround was the result of a multi-year overhaul in which the bank essentially built a new investment-banking platform from scratch.

“The idea was to mirror the leveraged finance business and be a dominant middle-market investment bank,” said head of ECM Jonathan Biele, who was hired in 2013 to oversee the build-out.

“I told management we could build a bulge-bracket effort with a middle-market focus here with talent that differentiates us from our peers.”

That meant penetrating new markets and moving beyond the bank’s substantial regional footprint in the southeastern United States.

It involved building a broad ECM platform with a deep bench of experienced bankers such as head of syndicate Tim Gould and head of technology origination Andy Laszlo – both veterans, like Biele, of Lehman Brothers.

And it meant upgrading the bank’s research capabilities, the essential tool that allows mid-market firms to compete with the bigger players.

In 2013, SunTrust had 20 analysts covering fewer than 200 companies. It now has 39 analysts who follow more than 700 names.

Along with that expansion and overhaul, SunTrust has concentrated on IPOs.

“An IPO is the lifeblood of any ECM franchise,” Gould said. “It drives the fee-stream opportunity that runs through follow-ons, convertibles and other assignments.”

The bank has placed a special emphasis on being able to step up from junior roles to more senior ones, as it did with Goldman Sachs BDC, a speciality finance offshoot of the investment bank.

SunTrust parlayed a mandate as co-manager on the company’s March 2015 IPO into a role as active joint bookrunner on Goldman Sachs BDC’s US$115m convertible bond issue in October.

Similarly, it was a bookrunner on a US$157.5m follow-on offering from gene therapy pioneer Spark Therapeutics after filling more junior roles in earlier financings.

And after serving as passive books for a US$173m mandatory convertible issue and arranging US$2.3bn of debt funding for Amsurg in 2014, SunTrust was lead-left on the company’s US$467m follow-on in December 2015.

“We are currently more weighted toward IPOs than we are to follow-on offerings,” said Biele. “We’ve invested heavily in the platform so that we can continue to mine that annuity business through future follow-ons.”

But SunTrust has also distinguished itself with full-service mandates such as its work for Sovran Self Storage, a REIT based in California.

SunTrust was adviser on the REIT’s US$1.33bn acquisition of LifeStorage, another self-storage operator, and was active at every stage of the takeout financing.

It backstopped the purchase, led a US$690m one-day marketed follow-on stock offering in May and was a bookrunner on a US$600m sale of high-yield bonds one month later.

And while the bank is not quite ready to put its balance sheet at risk, it has used confidentially marketed public offerings as an alternative to block trades. Lead-left roles on wall-crossed trades were won for Ring Energy, Earthstone Energy and Contango Oil & Gas.

It has been a welcome change for the bank, whose roots in investment banking go back to leading the IPO for Coca-Cola in 1919.

Though it remains a commercial bank at its core – it has 1,400 retail branches across the US southeast – SunTrust may well have even better days in ECM ahead.

And Biele certainly believes the mid-market opportunity is there for the taking.

“As long as we stay true to our knitting,” he said, “there is a void in the space that we can take over.”

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