While Big M&A Banks Are Becalmed, Boutiques Catch Strong Tail Wind

Corporate Financing Week – August 18, 2002

Alice Cabotaje

The big investment banks are hard pressed to find mergers and acquisition deals, but small boutique investment firms are thriving and hiring as M&A technology deals with values of $100 million or less, increase. At least six boutique investment firms–Boston-based BlueLake Partners, Silicon Valley-based Alliant Partners and Woodside Capital Partners and San Francisco-based Catapult Advisors, Seven Hills Group and Rutberg & Co.–are looking to hire senior technology investment bankers. They’ve benefited from a drop in the average size of tech deals in the U.S. to $90.1 million this year from $224.6 million in 2000, according to Thomson Financial.

Ron Lissak, managing partner at Catapult, said there are approximately 5,284 private companies that secured venture capital over the period 1999 to 2001. As of the end of last year some 7% of those companies were sold and 11% went bankrupt, leaving some 82% that are looking for an exit strategy. While more than half of the surviving companies are likely to fail, boutique investment banks are still left with a large number of potential deals from VC-backed companies that are looking to get sold, he said.

Woodside’s Jeff Karan said his firm plans to hire up to five investment bankers and is in talks with two candidates. Alliant seeks to sign up as many as three v.p.s or principal-level bankers for its semiconductor practice, said Jevan Anderson, v.p., and BlueLake ceo Margaret Johns said her firm will bring on board two partners within the next 12 months. Catapult’s Lissak said he does not have a specific number in mind, but is also looking for talent. Rutberg & Co. plans to hire managing director-level investment bankers in the fall or winter (CFW, 8/5) while Seven Hills Group will look to appoint three partners within the next 12 months (CFW, 7/29).

Some venture capitalists confirm that they are exploring opportunities to either merge or sell some portfolio companies. Steve Tonsfeldt, who heads Venture Law Group’s M&A group, said the firm expects to oversee the sale of 30 start-ups from its portfolio companies of 350-400 this year. He noted that about one third to one half of the 30 start-ups that are up for sale will engage an advisor or boutique investment bank. One of VLG’s portfolio companies, a semiconductor provider that is looking for buyers, is currently working with the Seven Hills Group, he said.