Alive and kicking

In 1999, Thomas Weisel and some colleagues from Montgomery Securities launched a full-service investment bank focused on helping young Bay Area technology companies go public. During the ensuing dot-com boom, a virtual pipeline ran from the heart of Silicon Valley straight to Thomas Weisel Partners Group LLC's San Francisco headquarters, with early clients such as high-profile Internet startups Pets.com, VarsityBooks.com and Drugstore.com.

Unfortunately for Weisel, most of these hits soon turned into some of the era's biggest bombs. The bank's decline was swift. Business bottomed in 2002, and since then it has moved to enter new industries, such as healthcare and consumer businesses, while reducing its dependency on underwriting initial public offerings.

In 2006, Weisel profited from a new boom in mergers and acquisitions to complete its own IPO. Last year, meanwhile, the company took its boldest step yet away from its tech focus, acquiring Canadian investment bank Westwind Partners Inc., which specializes in energy and mining. Despite such shifts, Weisel remains on the bubble. The company's stock trades for roughly $3.10 per share, down from a peak of $23.40. Annual revenue is down from a high of $486 million in 2000 to $234 million.

The bank has laid off staff in a move to align costs with the downturn in its business. More broadly, the financial industry is in chaos, while the U.S. economic recession is throttling the brokerage, advisory and asset management business that investment banks like Weisel depend on.

In the face of such challenges, Lionel Conacher's upbeat assessment of Weisel's prospects sounds a little incongruous. As the bank's president and chief operating officer, Conacher, 46, says the financial crisis that is remaking the investment banking landscape represents an opportunity for smaller institutions like Weisel. The banker, who joined Weisel in the Westwind acquisition, says that "money is on the move" in the industry. His appointment as president also has freed CEO Thomas Weisel to again take a more hands-on role in the company, Conacher adds. The executive recently spoke with The Deal about what Weisel is doing to revive its business during a time of enormous change in the banking world.

The Deal: Like other banks, Weisel Partners has struggled of late. Yet it's worth noting that, unlike a number of other institutions, it has survived. Do you see any encouraging signs for the bank despite the woeful economic conditions plaguing the financial industry?

Lionel Conacher: We have had some significant competitors go out of business and some significant competitors combine. Somewhere between 10% and 20% market share in the areas where we do business is up for grabs. That's not to say that we'll get it all, but we intend to get more than our fair share. Historically, in venture-backed IPOs, we would have competed with the Morgan Stanleys of the world. It's my belief that the bulge-bracket firms are all preoccupied and are going upmarket. Goldman Sachs is getting out of small-cap stocks. Its layoffs have all been in the small-cap area. For firms like us, this creates an opportunity.

Really? Our reporting shows that the big banks -- even if we're talking about Merrill Lynch operating within Bank of America -- are increasingly targeting the middle market now that major acquisitions are off the table.

We know the venture capital community. We talk to them all day long, and we keep hearing that the bulge firms that had historically been active in calling on the venture community are not doing that anymore.

How does this latest downturn compare with the dot-com bust?

This feels like a combination of the 1987 crash and the savings & loan crisis of 1993, because the '87 crash was marketwide as opposed to sector specific, and the S&L crisis was real estate driven and resulted in a massive reset in values. For us, our revenue base is much more diversified than it was at the time of the dot-com bust.

You've announced two rounds of job cuts this year, amounting to about 27% of your staff being eliminated. Does such a large cutback make it tough for Weisel, which remains a full-service bank, to continue firing on all
cylinders?

I don't think we've cut muscle or bone. I think we're right-sized. We had been overbuilt for the market opportunity we had. We are continuing to look for bankers in the U.S. energy area. We are continuing to look to add to our healthcare expertise.

What about in high-tech?

We're good on the tech side.

Energy and mining are relatively new sectors for Weisel. What is your outlook for deal activity in this sector, and how does that compare with high-tech?  Continued...