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The Wall Street analyst-turned-blogger Henry Blodget called it "a disaster." The Wall Street Journal labelled it a "botched offering." And, after Facebook's much-criticised initial public offering (IPO) in May 2012, Morgan Stanley's vaunted technology investment banking team, the lead underwriter on the deal, looked as if it were down for the count.
When Twitter, the next big social media phenomenon to go public, named Goldman Sachs its lead underwriter for its November 2013 offering, the asset manager Jeffrey Sica told Bloomberg, "I would imagine that Goldman will be the underwriter of choice for tech companies in the near future." In striking contrast to Facebook's debut, Twitter's offering was hailed as a model one.
How things have changed. After plunging in their early days of trading, Facebook shares took over a year to regain their offering price. But by this week, they'd gained nearly 50 per cent, and patient investors in the IPO have been rewarded. The much-maligned offering price now looks right on target. Twitter shares, on the other hand, took off quickly out of the gate. In their first trade, on November 7, 2013, they opened at $45.10 a share. But they have since fallen off, trading below $33.
And, despite dire predictions post-Facebook, Morgan Stanley is firmly ensconced at the top of the closely watched league tables for technology deals, which track investment banking performance. Since Facebook went public, Morgan Stanley has been involved in 47 technology public offerings with a total value of $23.4 billion. (JPMorgan Chase is second by dollar value and Goldman Sachs third.)
That doesn't count the Alibaba mega-offering scheduled for this summer, which was announced this week. Morgan Stanley is one of five investment banks chosen to underwrite the deal for the company, which operates China's biggest website and online shopping platform. (The banks were listed alphabetically in the registration filings in an unusual underwriter-of-equals arrangement.)
Sica conceded that his prediction didn't pan out. "I guess it shows that time heals all wounds," he said. "Facebook was a learning experience for Morgan Stanley and since then, they've embraced their big distribution network of retail brokers. That's an advantage that Goldman doesn't have."
All of which amounts to a long-awaited vindication for Morgan Stanley's West Coast technology team, which is led by Michael Grimes, 47, who has been with Morgan Stanley for 19 years. "We knew that staying focused on delivering for clients was more important than ever given the volatile market," he told me this week. While the bad press was painful, he cited to colleagues the Rudyard Kipling poem "If," which begins,
If you can keep your head when all about you
Are losing theirs and blaming it on you.
Others said rehabilitating Morgan Stanley's reputation took a sustained effort. Things were so bad in the weeks after the Facebook offering that the firm's chief executive, James Gorman, went on CNBC to defend the firm's role in the deal, and told employees in a webcast that they "should be proud of the job your colleagues did."
Morgan Stanley declined to comment.
Several clients said Morgan Stanley's success with three offerings in the months after Facebook - for Palo Alto Networks, Kayak and Workday - at a time when others were warning that Facebook had ruined the prospects for public offerings, sent a powerful message that the firm's technology franchise was still functioning. Jim Goetz, a venture capitalist at Sequoia Capital, is a board member at Palo Alto Networks and was involved in choosing Morgan Stanley for all three deals. "Morgan Stanley had the courage to test the waters with us," he said.
Among milestones in the history of Silicon Valley, Morgan Stanley was the lead underwriter in IPO for Apple, Cisco, Google, and Salesforce.com. Alongside Grimes, there's Paul Chamberlain (26 years at the firm), Andrew Kearns (16 years), Drew Guevara (19 years) and Colin Stewart (26 years), which is remarkable longevity for a team at one firm. They survived the departure of the prominent technology banker Frank Quattrone and criticism of Google's 2004 public offering in a complicated "Dutch auction." And, the bankers stuck by Morgan Stanley when the firm was teetering during the financial crisis.
More important to clients in Silicon Valley, Morgan Stanley "has been there through thick and thin, ups and downs" Goetz said. "Others just pulled up and left Sand Hill Road for years at a time. (Sand Hill Road is known as "Wall Street West" for its concentration of venture capitalists and private equity firms.) "People don't forget that," he said. Among the big firms shrinking or closing outposts on Sand Hill Road after the tech collapse were Goldman Sachs and Deutsche Bank. (Both have since returned.)
This year could well be a record year for Morgan Stanley's deal makers, despite the recent slump in some prominent technology stocks. Besides its role in Alibaba's coming offering, which could top Facebook's $16 billion debut as the largest technology offering ever, it represented WhatsApp in its $16 billion sale to Facebook in February - a huge deal that's still reverberating in Silicon Valley.
© 2014 The New York Times News Service
