Minorities and women are finally getting a seat at the IPO underwriting table

Cynthia DiBartolo is CEO of Tigress Financial Partners at the New York Stock Exchange. Source: NYSE
Wall Street heavyweights Goldman Sachs & JPMorgan Chase led Robinhood's anticipated IPO last month. The extensive list of underwriters included boutique minority-owned companies Ramirez & Co., and Siebert Williams Shank. Fourteen of the 17 companies that underwrote the offering were owned by women, minorities and veterans. This is known as MWVBEs. According to FactSet, 13 of the 25 largest IPOs of U.S. technology companies over the past year featured two or more of these firms. Wall Street banks and tech companies, which are long-established and controlled mainly by white men, were put under pressure to diversify their operations in the wake of George Floyd's murder and subsequent Black Lives Matter protests. Companies promised to improve their diversity by creating social justice programs and committing to hiring more diverse candidates. The IPO market was closed at the time due to the Covid-19 shutdowns, economic downturn and other factors. In July and August, it slowly reopened and was then opened in September. Snowflake had the largest U.S. software offer ever recorded. Four MWVBEs were used as underwriters in Snowflake's IPO. These four were the same four Robinhood later used. Two of these firms were involved in Unity's share sale which took place right after Snowflake. Airbnb's December IPO included a dozen.

Cynthia DiBartolo doesn't want to celebrate the achievements. After 35 years in the finance industry and a decade since founding Tigress Financial, DiBartolo is a strong advocate for women's and minority participation in deal-making. Robinhood has added four new firms to its list of underwriters. But DiBartolo stated that this was a great opportunity for a company that prides itself on its role in democratizing investment. DiBartolo stated in an interview that while we appreciate what they did, he felt they could have brought in more firms to make the company more inclusive and more visible. Diverse firms were working to provide equality of opportunity for diverse investors long before Robinhood was founded. We didn't have the firepower or balance sheet of Robinhood. Tigress was the first disabled and female-owned floor broker to join the New York Stock Exchange in July. Her firm was one of five MWVBEs who served as underwriters to Monday.com's IPO. DiBartolo now works to ensure that many other firms, like hers, get a regular place at the table. DiBartolo has created a diversity questionnaire or request for information (RFI) to allow for participation in offering. She explained that the goal is to make it easier for companies to sell stock, issue debt, or do share buybacks, in order to vet minority- and women-owned businesses. American Express has, she stated, already sent the RFI out to the firms in the group for future deals.

"Everyone is at risk for their reputation"

DiBartolo stated that JPMorgan is going to take her work one step further. To build a database that will automate due diligence for clients, the bank is gathering data from questionnaires completed by MWVBEs. DiBartolo stated that she is in discussions with other Wall Street banks to do something similar. JPMorgan spokeswoman confirmed that the process is ongoing. The company stated in an email that "JPMorgan's goal was to increase the opportunity for minority- and women-led businesses to be included in equity capital markets issuances." We are creating a searchable database using a simplified industry RFI. This will enable us to better evaluate the strengths and abilities of each firm to offer our clients as issuers. Firms are asked to provide details about their principals and their work, as well as their expertise, and any regulatory or legal issues. DiBartolo stated that everyone is at risk of reputational damage. You want to find out who the firms are, their history, who is behind them, how diverse the workforce is, what is the regulatory history and if there is any litigation pending. These are the questions to ask. DiBartolo is part other organizations that use different approaches to diversify their deal making. DiBartolo chairs the financial services steering committee at Jesse Jackson Sr.’s Rainbow PUSH Coalition. This is an organization that fights for social justice. The Wall Street Project is a 25 year-old group that advocates for minority- and women-owned finance businesses. Rebecca Cruz, director for business development at The Wall Street Project, stated that whenever she hears about a U.S. firm raising more than $100 million in an IPO, she writes a letter to its CEO and CFO. The letter encourages companies to include some of the eight minority-owned businesses that are members of the organisation and provides details on the MWVBEs' achievements. Cruz stated that she monitors news clips and press releases regarding confidential IPO filings in order to reach out to companies before prospectuses are published. She said, "We are not pressuring them. We're saying that it's good business to include these companies on the transaction." "All the companies we work with have demonstrated their ability to transact on Wall Street. These aren’t just any old firms. Many of these firms have been in existence for decades. They manage money for clients, trade, underwrite corporate debt deals, and are able to do proprietary research. Although they are a fraction of the Wall Street giants in size and smaller than some of the well-respected mid-market firms such as William Blair, Raymond James, and Piper Jaffray respectively, Cruz wants to prove to companies that it is not just good public relations to increase diversity on their underwriter lists. It's a good business, which opens up opportunities to reach different investors.

Muriel Siebert was the first woman ever to hold a seat at the New York Stock Exchange. Getty Images

Siebert Williams Shank was created in 2019 through the merger of two companies, Siebert Cisneros Shank and the Williams Capital Group. Over the past 12 month, the firm has been active in helping to underwrite IPOs for Robinhood and Krispy Kreme. Sobani Warner, who was the director of equity at Williams since 2000, is the head for equities at Siebert Williams Shank. While the firm has been underwriting equity transactions for over two decades, she said there has been a significant sea-change in the last year and a quarter as shareholders and activist organizations have demanded stronger diversity policies. Warner stated that tech companies, as well as companies from a range of industries, may be all, want to contribute to the positive transformation we are experiencing.

Economic improvement

Yet, Siebert Williams Shank and other firms get a small percentage of the overall IPO. A CNBC and S&P Global Market Intelligence analysis showed that MWVBEs made $167,620 for each IPO or secondary offering between 2016 and 2020. This compares to $1.4million per deal for middle market firms. Warner stated that there has been "positive momentum" in deal economy recently, but she did not provide details. She said that revenue from any particular offering is not the most important thing. However, it is important to be able to show the potential value these firms have for a company so the relationship can be maintained when it comes time for strategic advisory support, debt financing and share buybacks. Warner stated, "This is a great way for us and them to get to know each other and to understand their capabilities." The IPO may be the first transaction that we make, but it is expected that this will not be the last.

Marqeta celebrates IPO on the Nasdaq June 9th 2021. Source: The Nasdaq

One example is Marqeta, the payment-tech company based in Oakland. Marqeta, a pre-IPO company, turned to Lise buyer, an advisor to help navigate the vast array of possible underwriters, as it prepared for its public debut earlier in the year. Marqeta's chief lawyer Seth Weissman said that he and Tripp Faix asked Buyer to list the top 10 minority- and women-owned companies. They did extensive research, narrowing down the list to six. Marqeta selected two of those firms to bake among them: Seelaus and Siebert Williams Shank, which is a New Jersey-based woman-owned company. Weissman stated that it is possible to reach different investors and offer people the chance to participate in an IPO. You can't count on them bringing the same investors every time. Weissman stated that the location was a major factor in selecting Siebert Williams Shank. The company is co-headquartered here in Oakland. Marqeta started an initiative to assist small businesses in Oakland affected by the Covid-19 shut downs early in the pandemic. According to FactSet, the Marqeta deal represents one of eight tech IPOs worth billions of dollars that Seelaus has been involved in over the past year. It was involved in only two other deals of this size before that: Lyft in 2019 and Peloton in 2018. Annie Seelaus, the father of the firm, stated that "we have a much larger seat at the table on the equity capital market which is really exiting." She joined the firm in 2009, and was appointed CEO in 2015. Seelaus stated that a series of events in 2020 turned the tide. She said that the push for inclusion and diversity alongside the wider social justice movement was crucial. The SEC approved last week new Nasdaq rules that require companies to list on the exchange to either meet the gender and racial diversity requirements for their boards, or explain in writing why not. Seelaus said that the emergence and use of special purpose acquisition corporations (SPACs), created a new market for a different type IPO. SPACs raised $83.4 billion in 2020, a record that was surpassed by the number in the first three month of this year. According to SPAC Research, they have raised $121.2 billion so far in 2021. This is almost nine times more than the total amount raised for 2019. A SPAC is a blank-check company that goes public via an IPO. Then, it searches for a target buyer and eventually turns the acquired business into an operating entity. SPAC IPOs use a different set or underwriters than traditional IPOs. In some cases, they have given better economics to alternative firms. In July 2020, Bill Ackman paid a number of MWVBEs a total 20% of the underwriting fees to Pershing Square Tontine Holdings' IPO. In an interview with Yahoo Finance, he stated that the amount was between 10 and 20 times the normal rate and that the firms were going to "do the work, you're part of the team."

Bill Ackman is the founder and CEO at Pershing Square Capital Management. CNBC