NEW YORK (CNNMoney) -- IPO bankers must be salivating at the possibility of 2011 being one of the busiest years for initial public offerings in years.
The U.S. IPO market has already had its best January ever, logging 9 deals that raised $4.4 billion, according to research firm DealLogic. Worldwide, 91 companies went public during the month, raising $12.7 billion.
And behind every successful IPO is a group of investment banks underwriting the deal and collecting millions of dollars in advisory fees. Last year, banks brought in $7.5 billion in fee income from IPOs, according to DealLogic. And this year is expected to be even better.
"If you look at the data from the fourth quarter and January, activity has come in at a pretty good level," said Sandler O'Neill managing director Devin Ryan. "I expect we should be able to maintain that, but any equity underwriting business is going to be sensitive to market direction."
Like most years, the IPO market will be dominated by large financial firms such as Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500).
But if this year does turn out to be as strong as some are predicting, it will be small- to mid-sized investment banks, such as Piper Jaffray (PJC) and Jefferies Group (JEF), that could benefit the most.
"[The smaller investment banks] haven't benefited as much as their larger peers because the sectors a lot of these banks specialize in were not particularly active in the last couple years," said Ryan.
That's because they specialize in smaller companies in sectors like technology and healthcare, which tend to see more IPO activity when the economy is doing better because investors are more confident about taking on the risk.
Jefferies for example was the lead underwriter on last week's $150 million IPO of Velti (VELT), a mobile ad technology company. And Piper Jaffray is underwriting the IPOs of healthcare companies Epocrates (EPOC), which raised $86 million on Tuesday, and Pacira Pharmaceuticals, which is expected to price this week.
Ryan said smaller companies like Velti were basically locked out of the capital markets as the IPO market dried up in 2008 and 2009, particularly for small- to mid-sized firms. The market saw 34 IPO pricings in 2008 and 63 pricings in 2009. Compare that with 2007, when 214 companies went public.
"There's all this pent-up demand from venture capital firms or private-equity firms to take their companies public," Ryan said. "These companies are just starting to be able to access the markets."
The generally strong underwriting year has already paid off. Shares of Piper Jaffray jumped 6% the day after the investment bank posted a better-than-expected fourth-quarter profit that was fueled primarily by equity underwriting. So far this year, Piper Jaffray's stock is up about 25%.
In fact, Piper Jaffray was the 13th most active underwriter of IPOs during the past 12 months, with four deals, according to data by IPO tracking firm Renaissance Capital. Jefferies was the ninth-most active, with seven lead underwriting roles.
Other mid-sized firms that could benefit from a strong year include JMP Group (JMP), the Cowen Group (COWN), FBR Capital Markets (FBRC) and Raymond James (RJF). Combined, the four firms were lead underwriters on eight separate deals last year.
How the big banks benefit: Because Goldman, Morgan, and other large banks have more lucrative divisions such as wealth management or proprietary trading desks, a strong 2011 IPO market will probably not "move the dial" when it comes to their profitability. But if IPO activity remains strong, these firms stand to benefit in other ways.
Goldman's equity underwriting division, which includes both IPOs and secondary offerings, accounted for only $1 billion of the $39 billion of revenue the firm logged last year.
But many of these firms use the IPOs as a launch pad for more lucrative transactions, such debt underwriting, secondary stock offerings or mergers & acquisitions advising.
"Equity underwriting for the big banks can be good business but it's considerably less profitable than doing things like debt underwriting," said Chris Katowski, a financial industry analyst with Oppenheimer.
Morgan Stanley was the lead underwriter on General Motors' 2010 IPO and weeks before GM went public, the automaker turned to Morgan to help structure a $5 billion line of credit, Katowski said.
"GM was a marquee deal for Morgan," he said. "Companies do IPOs with the firm they trust the most and plan on doing more business with."
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