Boutique Banks Find a Niche in Tech

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Allen & Co. Making Moves in Tech

Perhaps the the fastest-rising specialist (BusinessWeek, 2/26/08) is Allen & Co. Long known for its media expertise, Allen & Co. is making a name for itself as a matchmaker between Silicon Valley Web companies and East Coast sources of capital. The New York company advised CNET Networks (CNET) on its $1.8 billion sale to CBS (CBS) on May 15, and advised social networking Web site Bebo on its $850 million sale to Time Warner (TWX), which closed May 19. In 2007, Allen advised on 10 M&A deals worth $20 billion, vaulting to 61, based on transaction value on Thomson Reuters' list, from 177 in 2006.

Allen, which has ties to media titans including Rupert Murdoch and Barry Diller, has also begun brokering high-profile tech-industry financings, helping widget software company Slide secure $50 million on Jan. 14 from Fidelity Investments and T. Rowe Price (TROW), and helping Marc Andreessen's social networking Web site Ning raise $60 million in April. "As a Silicon Valley guy, I used to know them as an old-world banker," says Mark Stevens, a partner at tech-focused law firm Fenwick & West, who's dealt with Allen through one of his clients. "Now I know them as an old-world banker who's brought a lot of their contacts over to the new media world."

M&A Volume Could Pick Up Again

To be sure, the major investment banks are still the most powerful deal brokers on Wall Street when it comes to acquisitions and investments. Citi and Goldman advised on 500 or more M&A deals each in 2007, and UBS, JPMorgan Chase (JPM), and Morgan Stanley each worked on more than 400. By contrast, the largest boutique banks only tackled a few dozen deals last year.

A slowdown in M&A activity has also put dents in some prominent boutiques. Companies worldwide completed 1,942 M&A deals between Jan. 1 and May 21, 11% fewer than during the same period of 2007, according to Thomson Reuters. Deal value during the period fell to $70.9 billion, vs. $92.5 billion a year ago. Partly as a result, Evercore lost nearly $1 million in the first quarter as advisory fees fell 52% amid a slump in buyouts. Specialty bank Greenhill & Co.'s (GHL) $19.2 million first-quarter profit fell short of analysts' estimates amid a delay in deals. And ThinkEquity Partners was acquired by London investment bank Panmure Gordon in a $62 million deal last year, in what was seen as a rescue of the money-losing San Francisco boutique.

Still, the value of all M&A transactions shot up 29% last year, and investors and M&A lawyers say volume could pick up again, particularly in the Internet sector, as the slower U.S. economy forces Web 2.0 startups to sell and angel investors look to liquidate their portfolios.

Boutique banks have been able to thrive by competing for the largest deals, while having the flexibility to reach down and scoop up business on smaller deals in the range of $100 million that are sometimes bypassed by larger firms. But the little guys are able to charge rates comparable to those of their larger competitors. "Their premise is not that the fees are lower, it's that the service is better," says a law firm partner who's advised tech companies on dozens of M&A deals. "This used to be the guy who ran tech M&A at Goldman Sachs, Credit Suisse, or Morgan Stanley, and now they're focused on you."

Ricadela is a writer for BusinessWeek.com in Silicon Valley.