IPO Preview: Square 1 Financial

| About: Square 1 (SQBK)
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Focuses on the “venture banking market’ focusing on firms financed by venture firms and by private equity firms.

Compared to the parent of Silicon Valley Bank, SVB Financial Group (SIVB), SQBK is priced at a discount.

SQBK is based in Durham, North Carolina.

Based in Durham, NC, Square 1 Financial (NASDAQ:SQBK) scheduled a $94 million IPO with a market capitalization of $435 million at a price range midpoint of $16 on the Nasdaq for Thursday, March 27, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Sandler O'Neill, Keefe Bruyette Woods
Co-Managers: None

End of lockup (180 days): Tuesday, September 23, 2014

End of 40-day quiet period: Tuesday, May 6, 2014

SQBK is a bank that focuses on the "venture banking market' focusing on firms financed by venture firms and by private equity firms.

Compared to the parent of Silicon Valley Bank, SVB Financial Group (NASDAQ:SIVB), SQBK is priced at a discount.

Part of the discount may be that SQBK is based in Durham, North Carolina.


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The rating on SQBK is positive.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

SQBK is a financial services company headquartered in the greater Research Triangle Park area of North Carolina and became the bank holding company for Square 1 Bank, a de novo North Carolina commercial bank, in August 2005 upon the commencement of Square 1 Bank's operations.

SQBK marked its eight-year anniversary in August 2013 and, shortly thereafter, exceeded $1.0 billion in loans outstanding. As of December 31, 2013, SQBK had total assets of $2.3 billion, total loans outstanding of $1.1 billion, total deposits of $2.1 billion, and shareholders' equity of $189.1 million.

Venture banking market
SQBK refers to the market in which SQBK operates as the "venture banking market" and its bankers as "venture bankers."

Through Square 1 Bank, which was formed by experienced venture bankers, commercial bankers and entrepreneurs, SQBK focuses its banking activities almost exclusively on venture capital firms and private equity firms (which SQBK collectively refer to as "venture firms") and the portfolio companies funded by such firms.

Square 1 Bank provides a broad range of financial services nationwide to these investors and their portfolio companies, including, among others, term commercial loans, revolving lines of credit, asset-based loans, deposit products and fee-based banking services, including credit cards, foreign exchange, cash management and letters of credit.

Among entrepreneurial companies, SQBK's primary focus is on venture-backed technology and life sciences companies, nationwide. SQBK's strong relationships and extensive experience in the entrepreneurial community have allowed it to follow these and other companies across their stages of development, resulting in a diversified borrower and depositor customer base.

Venture firms
Venture firms are a key referral source for new entrepreneurial company relationships for Square 1 Bank.

However, SQBK has no arrangements or understandings with any venture firm relating to lending money to their portfolio companies.

SQBK targets its business development and marketing strategy primarily on entrepreneurs, venture-backed entrepreneurial companies and venture firms.

The terms of the credit facilities SQBK provides to its clients vary by type of loan product, loan size and growth stage of the client and underlying collateral.

SQBK provides commercial term loans and lines of credit to venture-backed companies primarily in the technology and life sciences sectors, with loan terms of between 12 and 48 months.

Dividend Policy
No dividends are planned.

SQBK's competitors include other banks, venture debt funds, specialty and diversified finance companies and investment advisory firms. SQBK's primary competitors are those financial institutions that specialize in venture banking and venture debt. There is only one other pure play commercial bank that serves SQBK's market, Silicon Valley Bank, and SQBK competes with them on an ongoing basis in all of the markets it serves. In addition to Silicon Valley Bank, there are several other commercial banks that serve the venture banking market but are not focused primarily on this market. These financial institutions include Comerica, City National Bank, First Republic Bank and Bridge Bank. Other lending competitors also include various debt funds and other specialty and diversified finance companies.

For the venture banking market, lending products are the most significant competitive factor among the financial institutions that serve the venture banking market. Not all commercial banks have credit models that allow for lending to companies that are in a pre-revenue or pre-profit stage. SQBK's main competitors that do have expertise in this market understand how to lend in this market, and compete aggressively for market share.

5% stockholders
Patriot Financial Partners, L.P. 21.83%
Castle Creek Capital Partners IV, L.P. 9.60%
Endicott Opportunity Partners III, L.P. 9.60%
Northaven Management, Inc. 8.05%
Basswood Capital Management, LLC 6.18%

Use of proceeds
SQBK expects to net $45.5 million from its IPO. Proceeds are allocated as follows:

to support its long-term growth by enhancing its capital ratios in light of the heightened capital standards under Basel III, and for general working capital and other corporate purposes.

SQBK intends, as a secondary purpose of the offering, to use the net proceeds to redeem, at the first quarterly redemption date following the offering, any Series A preferred stock and to retire any indebtedness relating to Square 1 Financial's trust preferred securities that remain outstanding following the completion of this offering.

Disclaimer: This SQBK IPO report is based on a reading and analysis of SQBK's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.