By Liz Hoffman
JPMorgan Chase & Co.'s health-care bankers in the past year
worked on the $74 billion takeover of Celgene Corp. and the $62
billion sale of Shire PLC.
Last fall they pitched Cianna Medical, a California company with
tumor-detecting technology and about $40 million in annual revenue,
on a sale. "I kept saying, tell me again why you're interested in
this deal?" said Jill Anderson, Cianna's then-chief executive.
Investment bankers across Wall Street are tripping over
themselves, and sometimes each other, to win business advising
smaller companies on deals -- assignments they would have scoffed
at a few years ago. They are hiring bankers in cities like Dallas
and Atlanta and cozying up to a different set of corporate
executives.
A Goldman Sachs Group Inc. partner cold-called his way onto a
$162 million stock-offering deal for a Texas-based chemicals
company. Citigroup Inc. sent a chairman to pitch for a $140 million
tech deal. Bank of America Corp. has doubled its investment bankers
in regional offices over the past two years.
And JPMorgan beat out four other banks to represent Cianna,
which sold for $200 million to Merit Medical Systems Inc.
"You worry as a CEO of a smaller company that you'll get the B
team" from a big bank, said Ms. Anderson, now a Merit board member.
"We didn't."
As the post-crisis deal boom shows signs of slowing, Wall Street
firms accustomed to headline-grabbing megadeals are sliding
downmarket. Deals between $500 million and a few billion dollars
historically have been dominated by regional firms such as Harris
Williams & Co. in Richmond, Va., and Minneapolis's Piper
Jaffray Cos.
"Every 10 years or so, the big banks get the idea to move in,"
said Mark Brady, head of mergers and acquisitions at William Blair
& Co., a Chicago-based firm where the average deal is $400
million. "As soon as there's a down-cycle, they disappear."
Bank executives say they are committed this time. Their own
investors are demanding growth, and "there are only so many big
transactions," Mr. Brady said. There were 135 deals in the U.S.
last year valued at over $2 billion, versus 2,200 under, according
to FactSet.
While fees in the middle market are smaller, they are typically
split between fewer banks. Deals also close faster and require
fewer staff than complex, trans-Atlantic takeovers.
An explosion in private equity also has brought order and
sophistication to the middle market. Sleepy family-owned firms have
been replaced by sponsor-backed companies eager to borrow, do deals
and go public. There are 7,800 companies owned by private-equity
firms, up 65% since 2010, according to the Milken Institute.
Banks also have their eyes on the $1 trillion in dry powder
private-equity firms have to spend.
Goldman in 2016 created a 30-banker team to focus on
private-equity deals, part of a broader effort to add 1,000 new
corporate clients to its roster of about 8,000. A spokeswoman said
that group's revenue rose 25% from 2017 to 2018. Goldman dispatched
four partners to regional offices in Dallas, Seattle, Atlanta and
Toronto and assigned a dedicated banker to hundreds of what it
calls "lonely clients," which get little attention from New York
bankers.
"There are lots and lots of companies that have enterprise
values of $500 million to $3 billion that have just never been
addressed by Goldman Sachs," Chief Executive David Solomon said
earlier this year.
JPMorgan in 2012 created a new group to focus on regional
deal-making. Investment bankers started pitching their services to
the thousands of midsize companies that already used JPMorgan's
commercial bank to manage their day-to-day finances.
Today the group includes 60 bankers across seven offices,
working for Atlanta native John Richert. JPMorgan said it has
doubled the investment-banking fees it collects from those
commercial-banking clients, from $1.3 billion in 2010 to $2.5
billion last year.
"I tell my team, 'You're probably not going to be on the front
page of The Wall Street Journal,'" Mr. Richert said. "'But you will
be on the front page of the transaction summary that [JPMorgan CEO]
Jamie [Dimon] gets on Friday mornings.'"
Joe Armes, chief executive of CSW Industrials Inc., an $870
million maker of industrial sealants and lubricants, said he hears
monthly from Andy Rabin, JPMorgan's point man in Dallas. Aasem
Khalil, a Goldman partner who relocated there in 2017, has visited
CSW's offices three times in the past year, Mr. Armes said.
"There's none of that 'flyover state' mentality you sometimes
get from New York bankers," Mr. Armes said.
Some banks are positioning the middle market as a way for
younger bankers to prove themselves. But senior executives are
pitching in, too.
When Ani Gadre decided to sell the software company he had
founded in 1997, he was surprised when Ben Druskin, Citigroup's
chairman of technology banking, came to his Fremont, Calif.,
offices to pitch. Citigroup beat out Credit Suisse Group AG and
other big banks for the business, Mr. Gadre said. His company,
eTouch Systems, sold for $140 million.
"I thought I'd be too small for them," said Mr. Gadre. He said
he is planning a celebratory closing dinner, and Citigroup bankers
have promised to pick up the tab.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
April 01, 2019 22:18 ET (02:18 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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