Session 4

Case Discussion- Investment

Banking at Thomas Wiesel
Partners
Dr. Himanshu Joshi
Investment Banking – IIM Rohtak
US Underwriting Activities.
Market Share of Emerging Growth Sectors
Thomas Weisel Partners - The Firm
• Investment Banking
• Research
• Institutional Sales
• Institutional Trading
• CAO
The Firms
What was the TWP Client Strategy?
What was the TWP Client Strategy?
• TWP built a business model tailored to companies in the leading US growth
sectors.
• Bulge Bracket Banks – underserved the leading growth market by staffing
engagements with junior level bankers and scaling back their research
coverage.
• TWP Bank-
• Access to senior and seasoned management across board,
• Integrated line of products and services – addressing an emerging
company’s needs at every stage of its corporate development.
• Team Work Mentality and Client First Orientation.
• In depth Industry Expertise and Power network within the Growth
Economy – leaders in VC, PE funds, Financial Institutions.
Business Lines of TWP..
1. Investment Banking –
A. Equity Corporate Finance – IPOs, SEOs, Convertible Debt, Right
Issues, Corporate Restructuring  Equity Carve-Outs, Tracking
Stocks, Spin Offs.
B. M&A
Statement of Operations..
1. A. Public Equity Financing..
• Product Lines-
• Underwritings
• IPOs
• FPOs
• Convertible Securities
• Overnight bought deals
• Private Placements
• Private Investment in Public Entity
Synergy..(Economy of Scope)
• between Underwriting & Institutional Sales Department
 Raised investment capital on behalf of its corporate clients by
assuming risk of buying new issue of securities and reselling it to the
public through TWPs distribution channel - Institutional Sales
Department.
Gross Underwriting Spread – Underwriting fee, selling concessions, and
management fee.
Underwriting Syndicate – Concentration Risk Mitigation.
What was TWP’s Plan for Underwriting
Business Development- Client Strategy?
What was TWP’s Plan for Underwriting
Business Development- Client Strategy?
• Relationships
• Strength of the banking team and its track record
• Dominance of its brokerage group in trading clients and comparable
companies stocks.
• Practice of aftermarket research coverage
• Implicit understanding that TWP would commit its capital to support
trading of the stock after financing.
Reason for Choosing IPO Lead Underwriter
Reason for Switching to a New Lead
Underwriter
How TWP got the clients for Underwriting
Business?
2. Private Placements
2. Private Placements
• TWP raised funds on a ‘best effort’ basis for their clients through the
use of private placements.
• In private placement, TWP acted as an agent and introduced privately
or publicly owned companies to institutional and other accredited
investors in its network of financial, strategic, or crossover investors.
• Minimized stringent and lengthy registration process, marketing of
the deal using private placement memorandum (resembling
prospectus) and visit potential private equity investors.
Private Placement Process and Evaluation??
Private Placement Process and Evaluation..
3. Mergers and Acquisitions
• M&A group of the TWP helped clients identify, assess, and structure
strategic transactions such as:
• Traditional M&A buy side and sell side,
• Leveraged recapitalizations,
• Management buyouts,
• Acquisition financing alternatives,
• “Going Private” transactions,
• Share repurchase strategies and
• Defensive and Acquisition Advice.
TWPs M&A Approach
TWPs M&A Approach
• TWP used a team approach where the banker with the industry
expertise from the corporate finance team joined the M&A specialist
to pitch the advisory work.
• On the Sell side, TWP searched for buyer of either the entire
company or a division  contacted strategic or financial buyers in its
network that might be interested in the acquisition. (incentive fee
structure to encourage the bank to find the highest bidder).
• Buy side advisory work involved more legwork and more failed deals
because many of the potential targets were not interested in being
acquired. (fixed fee to avoid incentive to inflate the purchase price).
M&A and Synergies of TWP Setup
• M&A activity did not directly involve the institutional sales, or trading
groups, or the research department.
Equity Capital Markets or Syndicate
Departments – The Hub of the Firm
• The firm organized capital markets into product specialists-
• Public equity
• Private equity placements
• PIPEs
• Convertible Debts
Equity Capital Markets or Syndicate
Departments – The Hub of the Firm
• Capital Markets linked the bankers in corporate finance and
institutional sales teams at TWP.
• The group allocated to the various buy-side investors interested in the
deal and determined the offering price that would satisfy the client
and the investors.
• Assembled the syndicate on the deals that TWP led and lobbied for
TWPs inclusion in other banks’ underwriting syndicates.
Equity Capital Markets or Syndicate
Departments – The Hub of the Firm
Institutional Brokerage or Institutional Sales
and Trading
• Served the institutional investment community with focus on growth
equity focus.
Five Groups –
1. Institutional or Research Sales
2. Sales Trading
3. Position (or block) Trading
4. Convertible Trading
5. Program Trading
TWP Trading Market Share..
Institutional Trading
• TWP’s goal was to be a dominant trader in the stocks of companies that
were corporate finance clients or covered by research department.
• TWP was not in the large-scale proprietary trading a its bulge-bracket
competitors Goldman Sachs.
• 12 market makers who covered Nasdaq stocks
• 11 listed traders who covered NYSE stocks
• Each trader traded roughly 50 stocks and generated volume two ways-
(i) through order taking driven by research, and
(ii) market making.
Institutional Trading
Research Driven Block Trading
• TWPs research analysts generated recommendations on whether to
buy, sell, or hold securities in the industries they covered.
• Every day, they exchanged trading ideas with TWP’s institutional sales
people, who pitched these buy and sell ideas to portfolio managers.
• If portfolio managers liked the stock recommendations- they
instructed their buy-side traders to execute the orders through TWPs
sales traders.
• Best combination of Price and Speed of Execution.
TWPs Trading Phillosophy
Equity Research
• Mark Manson – Director of Research oversaw the 37 research
analysts who provided “proprietary” research to TWPs Institutional
clients.
• Each research team had a senor analyst who was supported by
several junior analysts.
• It was organized into the five TWP industry sectors.
• The TWP research group covered 545 stocks, and over 80% were
stocks of small- and mid cap companies.
Equity Research
Private Client Department
• Under partner Shaugn Stanley, a team of 45 professionals in TWP’s
private client department managed $8.6 billion in assets and provided
financial advisory and comprehensive wealth management services to
individuals, families, closely held companies, and foundations
controlling large private pools of invested capital.
• Services – Asset management consulting, corporate and venture
services, fixed income and corporate cash management, estate and
tax planning, and access to TWP’s proprietary research.
Private Equity and Asset Management
• Private Equity
• Distribution Management
• TWP’s industry knowledge and expertise combined with its network
of business relationships allowed TWP to identify attractive
investment opportunities and attract potential investors to its funds.
• The distribution management business actively managed securities
distribution for private equity and venture capitals.
Key Words
Synergies
Network
Research
Expertise
Clients
Marketing of Deal/Services
• Demonstration of flow, Knowledge of the overall market trends, domain
expertise, and research.
Industry Trends – Dwindling Trade
Commissions
• Advancement in Technology, Electronic Trading, Decimalization, and
fierce competition among brokers reduced average commissions.
(stocks began trading in minimum increments of one cent rather than
one-sixteenth of a dollar to reduce the bid-offer spread).
Full Service Brokerage- commission included- Soft Dollar Payments
(Trade Commission + other services like research).
Buy side Financial Institutions like Mutual funds were critical of the Soft
dollar payments. They could not show these into their regular
operating expenses. It was non-transparent, varies from one FI to the
others.. From services offered to one FI to the others..
Industry Trends
Industry Trends- Regulations and Litigations
• Global Research Analyst Settlement – Aimed to protect analysts from
investment banking pressure.
• Conflict of interest could arise in banks with research, sales and
trading, Investment Banking under one roof.
• Analyst had to get approvals from a “research recommendation
committee” to initiate coverage or change a stock’s rating.
• They could no longer attend meetings where bankers were pitching
business, and communications with bankers were closely monitored.
TWP’s Responses..