..................................................... Local IPOs
Rising oil prices, a stock market rally and a resurgent Houston economy convinced Paul Murphy the time had finally come to take his $10 billion private bank on an eight-day Wall Street roadshow.
Murphy’s Cadence Bancorporation made its stock market debut in April after a long wait through an oil bust that prompted the Houston bank to almost halve its outstanding loans to oil producers and energy services providers.
In 2014, investors had feared a bank with a large number of energy loans would flounder on Wall Street. Now, borrowers in the oil patch are much healthier after cutting costs and reorganizing balance sheets, the banker said in a recent interview.
“They’ve been able to transform their companies and survive,” said Murphy, chairman and chief executive of Cadence.
By market value, the $1.8 billion Cadence Bancorporation was the largest of the dozen Houston companies that raised a combined $3.6 billion in initial public offerings over the past year and a half, according to rankings prepared for the Chronicle by S&P Global Market Intelligence.
That’s up from 2015, when Houston companies raised a combined $2 billion in public offerings, but it’s a drop from 2014, when firms collected $4.7 billion from stockmarket investors.
Over the next several years, Cadence plans to look for bank mergers and acquisitions that will hinge on its new stock market currency. The bank’s executives, Murphy said, have already begun speaking with investment bankers and potential sellers — or, in the industry parlance, “partners.”
Cadence Bancorporation, the parent of Birmingham, Ala.-based Cadence Bank, is only Houston’s fourth public bank company. But that number may continue to rise after a string of local bank IPOs in recent years.
“With the growth in Texas, there’s a lot of demand to invest in Texas banking, but there aren’t a lot of vehicles to do that,” said Dan Bass, managing director of investment banking at Performance Trust Capital Partners in Houston.
Bass couldn’t comment on which Houston banks might go public in coming years, but he said such a move would make sense for a financial institution with more than $1 billion in assets, particularly as oil prices rise.
Green Bancorp., the banking company of Houston’s Green Bank, made its Wall Street debut in July 2014, and Allegiance Bancshares, the parent of Houston’s Allegiance Bank, went public in 2015.
“You’ll see more of that before the end of the year,” Bass said. “If oil prices were still down in the $20-a-barrel range, you wouldn’t see these IPOs.”
The recovery in oil prices and U.S. drilling activity had also prompted the long-delayed IPO of the $1.5 billion Noble Midstream Partners, a pipeline operator and the thirdlargest Houston firm to go public since the beginning of last year.
When Noble executives approached investors last fall, after oil prices had bounced off a dozen-year low in February, investors were much more receptive than in the company’s first attempt a year earlier.
In September, Noble made the first public offering a midstream company that year, drawing investors to its growing set of pipelines and facilities in the Delaware Basin in West Texas and the DJ Basin in Colorado, two of the hottest U.S. oil fields.
“We essentially reopened the market,” said Terry Gerhart, chief executive of Noble Midstream. “Now we’re trading at more than double the original offering price.”
Over the next year, Noble Midstream plans to build four so-called gathering facilities, which process oil and gas pulled from the earth before piping the hydrocarbons from the oil patch. Its budget for new investments this year has climbed tenfold to $400 million.
The batch of Houston companies that went public over the past year and a half included another pipeline operator, the $1.4 billion Hess Midstream Partners, and the $1.2 billion Wildhorse Resource Development Corp., an oil and gas producer.
As oil prices rose and the number of drilling rigs more than doubled across the U.S., a handful of companies in the services sector — the segment that makes up the bulk of Houston’s energy workforce — also went public.
Those included Keane Group, a $1.7 billion hydraulic fracturing contractor; the $1.1 billion NCS Multistage Holdings, a well-stimulation company; Smart Sand, a $465 million frac sand supplier; and Solaris Oilfield Infrastructure, a $119 million oil equipment provider.
Earlier this year, investment bankers at Credit Suisse said another 15 oil field services companies worth a combined $3.5 billion could make their debut on Wall Street this year, as they recover from a brutal oil downturn that cost Texas one in three oil field jobs.
The oil field services industry’s recovery could raise the cost of drilling wells some 10 percent to 20 percent this year, oil executives say, but that’s not expected to slow the rampup in major oil fields.
“You’re drilling wells with very nice returns in the $50-a-barrel world,” said Kenneth Fisher, chairman of Noble Midstream.