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Cowen Group shares to make debut in IPO this week

By Yung Kim and Joe Giannone

NEW YORK, July 10 (Reuters) - Cowen Group is set to go public this week, and some analysts are bracing for a rough ride for its shares as the investment bank faces a tougher IPO market and a mixed outlook for its niche.

Cowen, which is being spun off by France's Societe Generale (SOGN.PA: Quote, Profile, Research), focuses on investment banking services for companies backed by venture capital (VC), which has not been the most active part of the initial public offering market recently.

Plus, the IPO market has generally been skittish lately, with stocks pricing at the lower end of expectations, falling on their first day of trade and some deals pulled altogether.

This trend hits Cowen twice, first by potentially weighing on its own share offering, and second by cutting into its IPO underwriting profits.

On top of that, a pair of Cowen executives quit about two weeks ago: William Buchanan, head of equity capital markets, and Richard Gormley, managing director in charge of its growing private investments in public equities business, a company spokesman said.

Shares of Cowen and Company (COWN.O: Quote, Profile, Research) could be priced at the middle to low end of expectations, said Sal Morreale, an IPO analyst for Cantor Fitzgerald.

"When you have a market that has had a downturn like we've had in the past three or four weeks, this volatility, interest in IPOs starts waning," Morreale said.

In February, another investment bank went public amid difficult conditions. Thomas Weisel Partners Group Inc. (TWPG.O: Quote, Profile, Research) went public despite the loss of lead underwriter Goldman Sachs Group Inc., which dropped out of the deal just a month before the offering.

The company's shares shot 33 percent higher in their first day of trading, but have since fallen back. Weisel shares, which closed at $18.35 on Monday, are down almost 25 percent from their peak of $24.35 in May.

Cowen's recent financial performance does appear to be better than Weisel's when that company went public. While Weisel reported a net loss and declining revenue in 2005, Cowen's results for the first quarter of 2006, its most recent figures, show strong growth for both revenue and earnings.

Cowen's trading business, which accounted for nearly half its revenue in 2005, is getting squeezed as commission revenue declines.

Cowen, which changed its name from SG Cowen this year, is different from competitors that cater to the largest companies and private equity funds. It focuses on venture capital-backed growth sectors, such as biopharmaceuticals and technology.

While the strategy decreases the number of competitors, it also means less potential business, notes Francis Gaskins, an independent IPO analyst and president of IPO Desktop.

"The VC pipeline is bigger now than it was a couple years ago, but still nothing to write home about," he said.