Extended hours at boutiques

-Contact Thomas Rasmussen

Results from our fourth annual Tech Banking Outlook Survey earlier this week showed that bankers are turning bearish. Delving further into the data, we took a look at how it breaks out among banks of various sizes. When asked about the average time to closing a transaction, bankers said the length had trended up by less than a quarter of a month. Hardly a significant slip. Nonetheless, what struck us was that respondents who identified themselves as belonging to smaller shops (1-14 principals) showed an increase in time to close over last year of about a half-month to an average of 8.2 months. This compares to larger banks (25+ principals) reporting an average closing time of 7.6 months or very large banks (50+ principals) reporting an average closing time of 7.3 months.

Anecdotally, we’ve heard about deals dragging on for some time. (Two recent deals, for instance, took more than two years to close, bankers from two different boutiques recently lamented.) Obviously, the delays are mostly due to the uncertain economic outlook among acquirers, who have virtually all of the leverage in negotiations these days because they are the only exit available to startups. Indeed, bankers cited the cloudy picture at tech companies as the main reason that deal flow will be down next year.

And deals could lag even more next year. The reason? Broadly speaking, terms for the transactions closed so far this year were set before the October meltdown on Wall Street. We’ve already seen the upheaval in the credit market force recalibrations in the purchase prices of several acquisitions, including Brocade’s big pickup of Foundry. Those price cuts, which typically involve bumping back shareholder votes, string out deals. And every day that deals don’t close, the market seems to weaken. The Nasdaq, having dropped 25% in the past month alone, is currently at a six-year low. Since buyers are acutely aware of that decline, they’re increasingly going to be looking for a discount on what they plan to purchase. With every bid and counterbid, the deal cycle lengthens.

Survey says …

Against the backdrop of historic turmoil on Wall Street, we sent out our fourth annual Bankers’ Survey to clients to get their views on where their business is now and where it’s heading. The take-away: It’s all heading down. Truly, every question – from assessments of overall pipelines to forecasts for specific lines of the banking business to headcount projections to the prediction of number of IPOs next year – prompted a dour outlook.

We’ll have a full report on the 15-question survey in tonight’s 451 Group daily email, but in the meantime we wanted to share two of the highlights (of the bearish variety) from the 127 responses to the survey. Perhaps the most revealing finding is that when bankers looked at the value of current deals in their pipeline, more than half of them said it had shrunk since the same time last year.

The dried-up pipelines have tech bankers seeing their ranks thinning even more in the coming months. (Note: Our survey was taken before Citigroup announced plans to cut some 52,000 jobs, the single largest corporate reduction in years.) Some 35% of respondents to our survey expect additional headcount reductions at their own firms, four times the percentage that predicted layoffs last year. Again, look for a full report on the survey later tonight.