Investment banking is making a comeback on the West Coast, riding the momentum of technology companies and the sector's appetite for mergers and acquisitions.
According to Investment Dealer's Digest, many investment bankers who'd worked in Silicon Valley and similar venues during the Internet boom are returning "amid a desperate search for experienced talent."
This time around, the market is less about initial public offerings and more about M&A, says IDD. In large part, that's because a surge of private equity money is becoming available. According to Thomson Financial, technology equity offerings in the U.S. hit $21 billion last year, up from $11 billion in 2002. M&A in the sector rose to $98 billion in 2005 from $36 billion in 2002. Strategic M&A seems to be the watchword, with industry leaders like Microsoft and Oracle seeking mature companies that fit with their overall missions or business plans and allow them to supplement their organic growth. Many such firms prefer to deal with only one provider, bankers say.
A number of boutique firms - including Thomas Weisel Partners, JMP, Montgomery & Co. and ThinkEquity Partners - are rushing to serve the market's needs with a full slate of services, including research, trading and investment banking, says IDD. Other firms - such as Revolution Partners and Cascadia Capital - offer advisory services only. MG Equity Partners, a London-based broker-dealer with offices in New York, says California has become increasingly important. Founder Amir Raveh told IDD, "Perhaps the next stage (for MG) will be offices in San Francisco, which will be the center of our activities in the next couple of years."
While bankers say many companies and investors have learned the lessons of the dot-com bubble, the market isn't without risk. More businesses are more leveraged, for example, which could put them under pressure in a downturn. In addition, with so much private equity funding available, larger companies can be prone to throwing money at flavor-of-the-month investments. For example, News Corp. last year bought the social-networking Web firm Intermix for $580 million - or 37 times EBITDA.