Small specialist investment banks are no longer viable, or so the argument goes. Why else would the old four horsemen of tech banking, Alex Brown, Montgomery Securities, Robertson Stephens and Hambrecht&Quist, all have sold out to bigger institutions with more products and bigger balance sheets?
The success of Thomas Weisel Partners would appear to prove this theory wrong. The bank was only set up in early spring last year, yet has already met with considerable success, in terms of backers won over, bankers recruited, and deals done.
The founder is Tom Weisel, for 20 years the CEO of Montgomery. Having sold to Nationsbank in 1997, Weisel soon realized that he might have made the wrong move; he and Nationsbank CEO Hugh McColl had very different visions for Montgomery, and the two men’s relationship was always a strained one.
The merger in 1998 with Bank of America, which had bought arch-investment-banking rival Robertson Stephens, made the situation even messier. Weisel stayed until the basics of integration were completed, then left to set up a new firm, taking over 100 of the best of Montgomery with him.
“The thinking behind it was that the mass of consolidation had created a real need for a bank exclusively focused on emerging companies in areas of transformation in the US economy,” says Weisel. “So we put together a merchant bank, along similar lines to the old British model, in which we act as both principal and adviser.”
Weisel now has over 300 clients and has concluded deals worth over $65 billion in its first year. “We expect to be equal to, if not greater in size than Montgomery was when we sold to Nationsbank,” predicts Weisel. In the first quarter this year the firm’s revenues were $140 million, 50% from institutional broking, 50% from investment banking. Total revenues last year were $186 million; Weisel expects to see $500 million this year.
Staying focused on the core space is one way Weisel hopes to succeed. And he has structured the firm in a way he thinks will be the cornerstone of its remaining independent. He has 22 private equity firms and 10 institutions (including AIG, GE Capital and Calpers) as investors.
Already Weisel Partners has been involved in headline-grabbing deals, such as advising on the $15 billion acquisition of E-Tek by JDS Uniphase, and Yahoo! buying Geocities. And it has acted as lead or co-lead on seven IPOs including Cysive, Exactis and Z-Tel. One that Weisel is proud of is the $540 million bought deal for Jabil Circuit at the start of June.
“We sold it within three hours, at a slight discount to the stock at close,” says Weisel. “They had done a secondary offering recently, and came at a 20% discount, so we were very pleased with our performance.”
It is still early days, but Weisel partners has made an exceptionally strong entrance into investment banking, proving that with the right mix of talent, experience and structure new ventures can succeed even against bulge bracket competition.
