M&A Research To Be Outsourced Next?

Wall Street's embrace of outsourcing took a great leap forward with Merrill Lynch's purchase of an $11 million stake in Copal Partners, an independent research provider operating primarily from India.

Merrill becomes the third major investment bank to invest in Copal. Deutsche Bank and Citigroup are also investors.

Copal provides financial research and analytics services for investment banks, hedge funds, investment advisors, private equity and independent research firms. Although sell-side equity research departments are among its customers, the bulk of its output is customized for particular client projects, such as helping banks pitch proposed deals.

That sets Copal apart from the herd of independent research shops that prepare reports for broad distribution, both competing with and complementing what sell-side research analysts do.

"Our services are generally provided by our team in India, however when required we are able to provide teams at our clients' locations," Copal says on its Web site. The five-year-old firm has approximately 550 employees and says it's growing 200% per year. Its offices are located in New York, London and Mauritius.

Copal's work for investment banking departments includes analyses of comparable companies, precedent transactions, company profiles, industry analysis, buyer/target lists and accretion/dilution modeling. Other projects it lists are company credit analyses for a credit hedge fund; small-cap stock tracking for an equity research department; and a car parts report for a private equity fund.

In its announcement Thursday, Copal calls Merrill's investment "a strong vote of confidence in our long-term growth prospects and the validity of our business model."

The deal suggests that junior-level staffers in investment banking may be on the way to becoming as expendable as sell-side equity analysts have become within bulge-bracket firms.

Still, investment bank analysts can take comfort that at least one contribution they make to their departments cannot be outsourced so easily: "Grande nofat latte!"