Who decides to do an initial public offering in an out of favor sector that pretty much assures you won’t get the best price for your stock?
The standard answer to this riddle is: it is an outstanding company that puts the sector to shame. Otherwise, the answer is that that the IPO is merely the first step in a bigger plan. So, hopefully the best price is yet to come.
Either way, Byline Bancorp, Inc. successfully sold 5.7 million shares raising about $104 million in the process. Experienced underwriters will tell you how tricky it can be to get investor attention on the day right before a four day long holiday like the 4th of July, but Merrill Lynch and Keefe, Bruyette & Woods managed to pull it off on June 30th. Time to shoot off the fireworks for Byline CEO Alberto Paracchini.
Not A Monster Bank
With $3.2 billion of assets BY generates just under $50 million in revenues, which is not bad by industry standards. They bring $6.6 million to the bottom line so bravo for Alberto and his team. So what makes Byline Bancorp so special, obviously it is no monster in the banking world?
On the surface, the answer is there is nothing on the outside that is unique. Headquartered in the City of Chicago, BY operates through 56 branches in the area offering the standard mix of banking products and services to small and medium sized businesses, including commercial real estate and financial middlemen. Their consumer business is geared to people living in close proximity to one of their branches.
Plain Vanilla On The Outside
Quoting directly from their S-1, “Our mission is to provide customers with a high degree of service, convenience and the products they need to achieve their financial objectives. We aim to do so one customer, one relationship and one neighborhood at a time. We believe that customers value convenience, prompt decision-making and knowledge of the local market when choosing a banking partner”.
If this business description appears indistinguishable from every other small bank you would be absolutely right. Occasionally a bland “me too” offering statement can work if you are in a super hot sector like technology or healthcare but we are talking about a bank.
The financial services sector has not been the place to make good stock market returns for some time now.
Action Below The Surface
Here is the story behind the offering. Back in 2013 Byline, then known as Metropolitan Bank Group was in trouble through bad real estate loans and other effects of the Great Recession. CEO Alberto Paracchini and his CFO lead a $207 million recapitalization effort that resulted in Alberto and his MBG Investment Group controlling just under half of the common stock.
With the recapitalization plan working and the profitability ratios singing a sweet tune, it is time for the risk takers to get paid. About a third of the 5.7 million-share offering came from selling shareholders. We haven’t seen the final prospectus but we assume the MBG Investment Group was among the bigger sellers.
The important thing is that Alberto and his team still controls a major chunk of BY stock. Our guess is that folks that specialize in recapitalization deals are looking for their next opportunity. That means taking BY public could be the beginning of a two-step process of establishing public valuation and then finding a buyer for the balance of their stock. Why else would there be an urgency to execute an IPO in a market for financial stocks that has been tepid at best?