"Undermining the underwriters"
by Justin Schack | May 2005
Underwriting initial public offerings has long been a cash cow for Wall Street, which has convinced corporate clients that shepherding new stocks into the market is a delicate art, suited only for the most skilled and experienced intermediaries.
Upstarts and skeptics have tried to dispel that idea. One notable attempt was last year's IPO of Internet search giant Google, whose founders insisted on an online Dutch auction that took a lot of control — and fees — away from traditional underwriters.
Now another development inthe IPO market may further marginalize conventional bankers: the emergence of the "IPO adviser."
Electronic-payment-services company VeriFone Holdings became the first to use such an adviser on its $154 million IPO late last month. VeriFone priced and distributed the shares through a conventional syndicate of five big investment banks. Lehman Brothers and J.P. Morgan Chase & Co. were joint book runners, and Banc of America Securities, Credit Suisse First Boston and Goldman, Sachs & Co. acted as co-managers. But for most of the other work on the deal — drafting regulatory filings, working on valuation, even helping to pick the underwriters — Veri-Fone retained a tiny San Francisco boutique, Financial Technology Partners, which earned a healthy chunk of the overall fees.
VeriFone executives were unable to comment on the choice of FT Partners because of quiet-period regulations surrounding securities offerings. But a source familiar with the company's thinking says one reason that it hired an IPO adviser was to have an independent entity value the company. Because big investment banks are also looking to please their investor clients, they sometimes underprice new offerings, reducing the proceeds raised by the corporate client.
Another big plus for the initiator is that a single IPO adviser can keep a company's intentions secret until the client is ready to market the deal. Going the traditional underwriting route usually means interviewing several banks nine months to one year in advance of pricing, hiring underwriters and having them do the prep work before filing the deal with regulators. In this case, withdrawing or delaying the deal can prove embarrassing and damaging to the company because its intent to go public is more widely known.
For FT Partners, a seven-person merger advisory boutique founded two years ago by former Goldman banker Steve McLaughlin, acting as an IPO adviser allows it to help clients with securities offerings without adding the costly infrastructure — scores of analysts, traders, salespeople, lawyers and syndicate professionals — that firms must have to price and distribute deals.
"When we talk with clients about what we do, this opens people's eyes to include us in discussions that they might not normally include a boutique in," says McLaughlin, 36.
VeriFone is paying FT Partners an advisory fee. Rather than taking the customary 7 percent of proceeds, the underwriters will split 6 percent,or $9.24 million. (The deal hit a minor snag when a Lehman employee emailed potential clients regarding the transaction three days before it came to market, but VeriFone has said it doesn't believe that the email violated securities laws. Lehman declines to comment.)
At McLaughlin's request, his firm's fee is being paid in VeriFone shares valued at the offering price of $10 each, which FT Partners cannot sell for six months. Should the shares appreciate by then (they were trading at $12 in early May), the firm's payout could be much higher. "We're a very big believer in the management team and the growth story," says McLaughlin.
He expects both FT Partners and other boutiques to win more advisory mandates for IPOs and other securities offerings over time. The firm is currently working on a similar assignment, but McLaughlin won't identify the client.
Should more companies start using IPO advisers, it would significantly alter what it means for traditional Wall Street firms to underwrite these deals. Already sharing fees among larger syndicates than in the past, the big banks may just have to get used to having less to divvy up.
Investment Dealers' Digest
"Schwab Pays Big Bucks for SoundView: Bankers Must Have Done an Incredible Sales Pitch"
by Denise Lugo | November 24, 2003
(Excerpts from article published in Investment Dealers' Digest)
San Francisco-based Charles Schwab's announcement that it will buy Greenwich, Connecticut-based SoundView Technology Group ...Schwab was advised by Freeman & Co. and SoundView by Financial Technology Partners, which was co-founded a couple years ago by former Goldman Sachs banker Steve McLaughlin in San Francisco. McLaughlin's group, critics say, must have done an incredible sales pitch.
"I'm flabbergasted that they were able to pull off that kind of a number with what is left a group of analysts and institutional sales people," said Curt Snyder, former COO and CFO of SoundView who left the firm in March 2002 with Richard Prati and started American Technology Research, an independent research and trading firm in Greenwich.
"Personally, I'm quite happy that there's still somebody out there who's ready to pay those kind of numbers," said Snyder, who noted that research was the valuable asset of SoundView.
Observers said that SoundView's bankers may have been able to pull off such a strong closing price because they used the oldest trick in the book playing hard to get. They may have not been willing to back down from their asking price, and they had a strong enough franchise to pull it off. In essence, SoundView's management may have had a strong conviction about its ability to go it alone and did not have to sell.
"McLaughlin's New Deal"
by Justin Schack | January 2004
(Excerpts from article published by Institutional Investor)
When SoundView Technology Group decided to sell itself to Charles Schwab Corp. for $345 million in November, the firm didn't retain Goldman Sachs, an early investor in SoundView and its investment banker since its June IPO. Instead, SoundView called on Financial Technology Partners, a young boutique run by former Goldman banker Steve McLaughlin.
Successes notwithstanding, McLaughlin says not to expect FT Partners to follow the route of some other boutiques that are seeking to occupy the niche once filled by firms like Alex. Brown & Sons, Hambrecht & Quist, Montgomery Securities and Robertson Stephens, which sold out to larger institutions during the bull market. He's sticking to the advisory business, which requires relatively low overhead and can thus show bigger—and faster—profits than the underwriting, sales and trading operations at larger, more diversified firms.
The Daily Deal
"Goldman's Mini Me"
by Heidi Moore | December 1, 2003
(Excerpts from article published by The Deal)
When Charles Schwab Corp. agreed to buy SoundView Technology Group, the Old Greenwich, Connecticut-based research and trading firm turned to Financial Technology Partners for M&A advice. Helping to win the sell-side assignment for San Francisco-based FT's founder, Steve McLaughlin was the work he had done for Schwab [and SoundView] when he was at Goldman, Sachs & Co.
Indeed, McLaughlin, who founded FT Partners in early 2002, aspires to turn his firm into a pint-sized version of Goldman that concentrates on deals in the financial technology sector. Typical clients of the firm are companies that create the technology underlying the securities, banking and insurance industries.
"We're trying to create a smaller version of a bulge-bracket firm for M&A and private capital raising," McLaughlin says. That means aiming for larger and larger deals without taking on expensive capital markets or research operations.
Now, he hopes relationships forged at Goldman will continue to pay off as mergers, spinoffs and IPOs pack the landscape of the highly fragmented financial technology sector.
"Schwab, SoundView Give and Take Independent Advice"
by Jeffrey Goldfarb | November 19, 2003
(Excerpts from article published by Reuters)
Two financial companies hoping to capitalize on the demand for independent advice have relied on some themselves, hiring boutiques to guide them on a merger, rather than using Wall Street giants tainted by scandals.
Charles Schwab Corp, the largest U.S. discount brokerage, took counsel from Freeman & Co. for its plans to buy investment bank SoundView Technology Group Inc., which was itself advised by Financial Technology Partners.
"Clients are not necessarily looking for a brand name," said Steve McLaughlin, founder and managing partner of Financial Technology Partners.
"They're looking for a high degree of trust, independence, industry-level expertise and execution experience and that's not something you can always find at one of the larger firms for every transaction."
He started the seven-person, San Francisco-based firm early last year to focus on the technology aspects of the financial services industry.
McLaughlin emphasized the ability of a firm like his to be nimble and to spend more time on site with clients.
"Because we're small, we can't work on 10 transactions at a time, so we dedicate ourselves to the few transactions that we're working on and we make sure they get done flawlessly," McLaughlin said.
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