Boutiques multiply amid signs of an M&A comeback
New York Daily News – May 13, 2002
By NANCY DILLON
Daily News Business Writer
Paul Deninger has had a tough year, but the head of local tech investment bank Broadview senses a change in the winds blowing over the arid tech-deal landscape.
While a dozen pending mergers “fell out of bed” every time the Nasdaq got jittery over the past year, only one went sour when the Nasdaq recently dropped to lows not seen since October, Deninger said.
And with occasional performances like last Wednesday’s big tech surge following Cisco’s earnings report, there are even better prospects for good times ahead.
“Deals are holding together. People have conviction again,” Deninger said from his offices overlooking the Hudson River in Fort Lee, N.J.
This month Broadview announced its ninth deal of 2002: advising health-care company McKesson in a $340 million purchase of medical imaging company A.L.I. Technologies.
But the glint of a recovery in the market for tech-based mergers and acquisitions, a field that’s suffered a 40% to 60% drop since 2000, isn’t the only cause for celebration. Deninger has also noticed the clock turning back to the prebubble 1990s, when independent tech boutiques were at the peak of their game, nimbly snapping up clients that ran beneath the largest firms’ radar screens.
Indeed, many of the major, so-called “bulge-bracket,” banks are retreating from Broadview’s core business: sub-$500 million M&A deals. Merrill Lynch has shuttered its Silicon Valley office. CSFB has tightened the leash on Frank Quattrone’s tech group. And FleetBoston Financial is trying to sell Robertson Stephens, the tech bank it bought for $800 million in 1998.
Analysts said the boutiques are also helped by the dark cloud hanging over the research being done by big firms such as Merrill Lynch, now under investigation by state Attorney General Eliot Spitzer.
“It’s like all the tech tourists are going home. Now they only want to serve companies with a $1 billion market cap,” Deninger said. “I’m just rubbing my hands together. Young companies are the lifeblood of this industry.”
Dozens of new boutiques have sprung up over the last year to exploit such opportunity, many started by refugees from big firms. One is ThinkEquity Partners, formed by a dozen former Merrill execs. Another is Catapult Advisors, co-founded by ex-Banc of America Securities banker Ron Lissak.
“Growth companies have received more venture capital funding in the last five years than in all previous years combined,” Lissak said. “Sure, a lot of those companies were part of the dot-com bust, but many others are real companies.”
Now that the easy route of issuing stock before turning a profit is no longer possible, these companies need help tapping other sources of expansion capital. Lissak said his firm is aggressively hiring to meet demand. “I’m probably spending a third of my time interviewing talent,” he said.