Twitter IPO May Prove Morgan Stanley's Facebook Fallout

NEW YORK ( TheStreet) -- As the one-year anniversary of Facebook's ( FB) blockbuster initial public offering looms, lead underwriter Morgan Stanley ( MS) has yet to prove the botched offering has not hurt it's leading position in tech sector equity underwriting.

Twitter's unannounced but much anticipated initial public offering will prove whether or not Facebook's scandal-ridden offering, the third largest in U.S. history, has made a dent in the Morgan Stanley's ability to win the biggest deals coming out of Silicon Valley.

Morgan Stanley priced Facebook's May 18, 2012 IPO at $38 a share, in a deal that raised $16 billion for the social network and valued the company at over $100 billion.

Facebook has not traded above $38 a share since the IPO, and shares in the company remain about 30% below their listing price. Facebook opened Wednesday trading at $27.07, an increase of over 50% from share price lows below $18 in early September.

Shares in Morgan Stanley, by contrast, have gained over 70% to $24.70 since May 18.

Had Facebook's offering been priced correctly and with a manageable size for investors to handle, "Twitter would have come out by now," says Scott Sweet, a senior managing director at IPO Boutique.

"It would be wise for Twitter or another fledgling social network to choose another lead left book runner to lead their offering," Sweet says when discusing Morgan Stanley's management of the Facebook offering. "They made serious mistakes," he adds, while noting firms should still include Morgan Stanley on offerings because of their tech wherewithal.

Morgan Stanley, a powerhouse in tech sector IPO's after leading offerings for Google ( GOOG), Salesforce.com ( CRM) and LinkedIn ( LNKD), pulled a gigantic coup in winning Facebook's IPO.

The question is whether disappointed investors, lawsuits and regulatory settlements prove the Facebook deal to be a pyrrhic victory.

Morgan Stanley remains a force in tech sector equity underwriting. It won the lead mandate to underwrite Workday's ( WDAY) $732.55 million offering, the largest tech listing since Facebook.

According to Dealogic data, Morgan Stanley ended 2012 with the top market share in running global IPOs, bolstered by Facebook's offering. Overall, the firm earned nearly $1 billion in revenue from running equity underwriting, the data shows.

Still, signs of cracks may be showing.

Morgan Stanley won't be leading CDW's $500 million offering expected in 2013. The investment bank is also splitting lead work with Goldman Sachs ( GS) on Tableau Software's upcoming listing. It also isn't a lead underwriter of Marketo's IPO.

Both firms specialize in software services and the enterprise software market, a specialty of Morgan Stanley's. "Morgan owned that space last year," says Sweet.

In the first quarter of 2013, Morgan Stanley placed far behind competitors Goldman Sachs and a nascent Barclays ( BCS) in running U.S. based IPOs amid a sharp rise in listings of real estate investment trusts, healthcare businesses and carve outs from conglomerates as big as Pfizer ( PFE).

Twitter's much speculated upon listing could put fallout from Facebook's IPO behind Morgan Stanley. Earlier in May, Twitter hired Cynthia Gaylor, a top Morgan Stanley banker to head the company's corporate development.

Prior to joining Twitter, Gaylor was one of the top M&A advisors in Silicon Valley, advising Amazon ( AMZN) on its well-received acquisition of Zappos and Google on its $750 million deal for AdMob.

While the hiring of a prominent banker led some to speculate Twitter is moving closer to an initial public offering, Gaylor took to the social network to talk about acquisitions. " Look forward to joining and focusing on M&A + strategy," Gaylor wrote in her first tweet May 2.

A recent fundraising round valued Twitter at $10 billion, meaning its prospective initial public offering will be among the largest in the tech sector in years.

For now, expect the one-year anniversary of Facebook's initial public offerings to raise bad memories of Morgan Stanley's underwriting work. As IPO markets reheat, however, bank may prove it remains the preeminent tech powerhouse on Wall Street.

-- Written by Antoine Gara in New York

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