Not Too Many "Googles Going On"


In the clubby world of tech banking, Bill Hambrecht is a legend. But until recently, few had heard of him beyond Silicon Valley and Wall Street. That changed in April, when search-engine giant Google (GOOG) filed to raise up to $2.7 billion in an initial public offering. The stock would be sold partly through a novel auction method pioneered by Hambrecht's six-year-old San Francisco financial-services firm, W.R. Hambrecht + Co. The deal, completed last month, sparked a debate about whether power over the pricing and distribution of IPOs is shifting from Wall Street to the issuing companies. With Google's shares trading 32% above the offering price, Hambrecht spoke to BusinessWeek correspondent Justin Hibbard on Sept. 14.

Q: Since the Google IPO, have companies looking to go public been beating a path to your door to do auctions?

A: There were probably a dozen companies that we had been talking to that were probably going to go the traditional route. Now they're at least rethinking the process. And there have been some new ones [expressing interest]. The real difference is that on the larger deals, the [big Wall Street] guys have always trivialized us. The Google thing changed that. Now we're getting considered by a lot of people who would [not] have [previously].

Q: How are you capitalizing on the momentum?

A: The first thing is getting me out of the way and appointing Clay Corbus as co-CEO. Also, back in January, we acquired most of the investing-banking group of SoundView Technology [from Charles Schwab (SCH)].

So, we have a bigger profile out in the field. We're trying to pair up with smart firms that know different sectors. For example, we're going to file an insurance company with Fox-Pitt, Kelton [to take the insurance company public].

Q: You've referred to the way the Google IPO was done as a "compromise" rather than a pure auction. Why?

A: Basically the same rule-setting was used as in an auction. The compromise was allowing the [lead underwriters Morgan Stanley (MWD) and Credit Suisse First Boston (CSR)] to control the distribution [of shares]. They said that every institutional order had to go through them. If you go through one [distribution] channel, you're likely to pick up the bias of that channel, and I think it was very clear that channel was biased towards $85 a share.

Q: Is that why the stock rose 18% on the first day of trading?

A: I think so. Because the bids we got from individuals [averaged] $97. And when it traded at $100, that's as accurate as you can get on price discovery. I think the [lead underwriters] would have gotten [more accurate pricing] had they allowed and encouraged all the institutional business to come in through any broker. But traditional underwriters hate that because they lose control.

Q: What's the outlook for your industry?

A: There has been a dramatic shrinking of the investment-banking business. The old commission pool that used to be so profitable has really shrunk. Secondly, there are a lot fewer big deals being done. The revenues are going to continue to be under pressure for the investment-banking business. It's still going to be a reasonably tough business where there are going to be a lot of adjustments in compensation and overhead.

Q: What does the future hold for the IPO market?

A: With new issues, what we'll continue to see are the survivors of the bubble. The analogy is the 1986 IPO class, which had Microsoft (MSFT), Oracle (ORCL), Adobe Systems (ADBE). There were 14 tech-company deals. They were the first wave after the bubble broke in '84 and '85, and I think the same thing has happened here, where you see Google and Salesforce.com (CRM), some really good companies.

What we saw in the '80s was that after the first burst, the market stayed cautious. So you might, once you get through this backlog, see a period where you don't see an awful lot going public. There's a lot of venture money out there, but you don't hear the buzz of a lot of Googles going on. Justin Hibbard is a correspondent in BusinessWeek's Silicon Valley bureau


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