Category: investment banking

Evercore’s short cycle

Brenon Daly

Investment banking, as everyone knows, is a cyclical business. In the case of Evercore Partners, the downswing lasted about a day. On Monday morning, CEO Roger Altman was on a call with disenchanted investors trying to explain why the company booked just half the amount of revenue in the first three months of this year that it did in the same period last year. (Setting aside the utter ridiculousness of projecting quarterly revenue on an advisory business, Evercore’s first-quarter revenue of $45m came in about one-third below the amount Wall Street had projected.) On the report, Evercore shares sank to their lowest level since the boutique bank came public almost two years ago.

By Monday afternoon, however, it was looking like Evercore was set to pocket tens of millions of dollars for the bank’s role in co-advising EDS on its $13.9bn sale to Hewlett-Packard. Depending on how Evercore and Citigroup divvy up the advisory fee, Evercore could end up taking home more money from its EDS mandate than it booked in the first three months of the year. (HP’s purchase is expected to close in the second half of 2008, so the success fees will flow after that.) We guess that’s what Altman, who worked firsthand on the EDS sale, meant when he said the bank’s backlog was ‘fine.’ Evercore shares, however, haven’t recovered and, in fact, are changing hands below where they were on Monday.  

Banking HP-EDS

Company Advisers
HP JPMorgan, Lehman Brothers
EDS Citigroup, Evercore Partners

Big Yellow’s purple elephant

Brenon Daly

Asked not too long ago to explain the slump in Symantec’s stock since acquiring Veritas three years ago, CEO John Thompson memorably called the combined company ‘a purple elephant.’ The allegorical description was a bit of a departure for the straight-laced, straight-talking ex-Big Blue executive, who went on to add that since Wall Street had never seen such a large security-storage company, it didn’t know how to value it. (Generally speaking, however, investors have known how to value it: lower. Since announcing the $13.5bn acquisition in December 2004, Symantec shares have shed about 22% of their value, compared to a 15% gain in the Nasdaq over that same time.)

The purple elephant has turned into a bit of a sacred cow, with Thompson defending the combination at every turn and forcefully knocking down any suggestion that Symantec should shed some of the Veritas assets. (Of course, Symantec already ditched Precise – an application performance management product that it inherited from Veritas – back in January.) Talk of possible divestitures surfaced last week following a research note from Cowen and Co analyst Walter Pritchard, who speculated that NetBackup and Data Center Foundation, a storage and server management product, may find their way onto the auction block. Not so, countered Thompson on Symantec’s first-quarter earnings call last Wednesday. The company has ‘no plans to divest anything – none.’ A senior corporate development guy at a company named as one of the possible buyers of the Foundation business told us recently that he hasn’t even been informally approached to gauge the company’s possible interest in Foundation, much less seen a book on the possible asset sale.

Of course, M&A is cyclical, to some degree tracking the overall economy. And we know this about dealmaking in a recession: When times get tight, ties get thin. We’ve already seen that most dramatically in the private equity world, whether it’s former buyout buddies taking each other to court or banks looking to get out of their lending agreements they’ve already signed. That same thinking (‘maybe we shouldn’t have done…’) is now hitting the C-suite. Consider the ongoing sell-a-thon at Time Warner, with the company planning to split off its cable services business, and, we speculate, finally putting AOL’s core US access business on the block. Or, there’s eBay entertaining the idea of jettisoning Skype Technologies, after writing down basically half of the $2.6bn purchase price. Or, if current reports are to be believed, Sprint Nextel may unwind the $39bn acquisition that has soured into a money-burning debacle. Although Thompson says Symantec isn’t a seller, this is clearly the climate in which companies are being pushed to reexamine their acquisitions. That could very well mean taking the knife to the purple elephant again.

Reversing deal flow

Company Assets Comment
Symantec NetBackup, Data Center Foundation, according to rumors Symantec says it’s not looking to sell.
Time Warner Cable services business, and (we speculate) AOL’s US access unit AOL has already shed ISP businesses overseas.
eBay Skype Technologies New CEO says next few quarters will determine if company keeps its overpriced acquisition.
Sprint Nextel Nextel WSJ reports this week that Sprint may unwind Nextel deal, and look to sell itself.
VeriSign Numerous units picked up in 20-company shopping spree VeriSign has already divested three businesses this year.

Wounded Bear

Brenon Daly

Given all the hardships (self-inflicted and otherwise) that have hit Bear Stearns over the past two months, we thought we found some good news for the investment bank earlier this week. Leafing through the paperwork around Borland’s sale of its CodeGear division to Embarcadero Technologies on Wednesday, we saw Bear listed as one of the advisers to CodeGear, along with boutique firm GTK Partners. (Embarcadero, owned by the sharp-penciled buyout guys at Thoma Cressey Bravo, didn’t use a banker.)

So does this mean Bear, whose rescue sale to JPMorgan is set to be voted on at the end of this month, stands to get a payday from the CodeGear engagement? Unfortunately not. Like so much happening at the bank these days, they’re in line for scraps. (For the record: Bear Stearns ranked 17th in our league tables last year, advising on nine deals collectively valued at $8bn.)

Bear Stearns had a long connection with Borland, particularly during the days of former CEO Dale Fuller, who was replaced in 2005 by current chief executive Tod Nielsen. (Bear banked Borland’s $185m acquisition of TogetherSoft and its $24m acquisition of Starbase, both in October 2002.) So it was natural for Borland to tap Bear when it decided two years ago to shed its CodeGear division as part of a step out of the developer tools business. To put it charitably, the Bear-led divestiture was fitful. A source familiar with the divestiture says the division was pulled out from under several possible acquirers, leaving the market a bit soured on the asset as the process dragged on for months.

Whatever the case, Borland pulled Bear off the deal last October and engaged boutique bank GTK Partners. (Why GTK? Managing director Ali Tabibian had previously worked with CodeGear CFO Cynthia Mignogna on the 1999 sale of Infoseek to Walt Disney. Mignogna also served as CFO there.) So GTK will be pocketing the majority of the advisory fee, with Bear getting a very small portion of that as part of a ‘tail.’ It’s just another sad event as the swan sings for Bear.

i2: The king watches an auction

Brenon Daly

Nearly three years after getting re-listed on the Nasdaq, i2 Technologies may well find itself taken off the exchange again. While accounting mistakes got the supply chain software vendor bumped the first time, a sale of i2 is likely to end its 12-year run as a public company sometime soon. Having shopped itself for a year now, i2 said last week there are ‘ongoing talks’ with two interested parties.

In our view, a far more important sign that the company is ready to sell is the fact that it knocked founder Sanjiv Sidhu from his spot as chairman of the company. Removing Sidhu is key to getting any deal done, in our view, because few software executives have dominated their companies to the degree that Sidhu has at i2. He had served as the company’s chairman for two decades since cofounding i2 in a Dallas apartment. He only gave up the CEO title three years ago. (Not even an SEC investigation into shady accounting – and a subsequent $10m fine paid by i2 – could dislodge Sidhu from his seat of power earlier this decade.)

Of course, any deal for i2 still has to flow through Sidhu. He owns 5.5 million, or 26%, of the company’s 21.4 million shares outstanding. And while he may be content to let the company’s ‘strategic review’ drag on, other large shareholders may not be as patient. Hedge funds BlackRock and SAC Capital Advisors both own about 1.9 million shares of i2 and are likely to push the company to get a deal done. (JPMorgan is advising i2 in the process.) Despite the tight credit market, we still think i2 will get snapped up by a private equity shop rather than a strategic acquirer.