Tired of losing lucrative investment opportunities to independent firms, BankBoston Corp. and Chase Manhattan Corp. are teaming up with industry specialists to get a piece of the private equity business.
With more money to invest than deals to be made, companies can pick and choose among sources of capital. Often, they turn to private firms with particular knowledge of their businesses.
"To get the good deals, you need the access and experience," said Frederick M. Fritz, president of BancBoston Capital, the private equity arm of BankBoston. "Partnering up will help. You can bring more to the table when you try to get a deal."
First offerings of private stock have the lowest price per share. Each follow-on offering is marked up, so subsequent investors pay more. The goal: to get in early, buy shares at a low price, and profit when the company goes public or the shares are resold at a higher price.
But banks wanting to follow in the pioneering footsteps of BancBoston Capital and Chase Capital Partners should note that such alliances can be tough to put together.
"It takes a long time to develop a relationship with someone," said Jeffrey C. Walker, managing partner at Chase Capital.
For example, Mr. Walker said, it took seven years to form a joint venture with Detroit-based Penske Corp. that will invest roughly $200 million in manufacturing and automotive supply companies.
Mr. Fritz also noted one of the risks. "There are reputation plays," he said. "Things can go wrong," and a bad association could harm the bank's reputation.
Independent private equity firms buy stock that is not traded publicly in order to finance companies.
They often work with a company's leaders to help manage its growth.
Prominent names in the field include Kleiner, Perkins Caufield & Byers, Menlo Park, Calif., which invests in biotechnology and software/information companies, and Brentwood Associates Venture Capital, a Los Angeles firm specializing in biotechnology and medical-related ventures.
While executives from these companies declined to be quoted, several discounted the competitive threat posed by these early bank alliances.
But that's not deterring BancBoston or Chase.
BancBoston Capital's alliances include global ventures with Crosby Asset Management of Hong Kong to invest in proprietary deals in Asia and with German Equity Partners to take advantage of Germany's relatively young private equity market.
Relationships Chase Capital has formed include that with Aerostar Capital LLC, a partnership with aerospace industry authority Robert D. Paulson.
Its most recent partnership is with San Francisco-based Tech Farm, a joint venture with Gordon Campbell, founder of several high-technology companies who will help Chase invest in similar start-up firms.
"We've looked at deals with them, had experiences with them," Mr. Walker said of Tech Farm.
"They look at deals the same way Chase looks at deals, and issues they have are the same ones Chase would have."
In addition to time, a partnership - as with any relationship - requires work.
"You have to give it resources," said Mr. Walker. "Put (in) enough people power, not just time and money. It's a lot of commitment from the bank unit."
So far, teaming up has been good for BancBoston and Chase. "It's been successful for us," said Mr. Walker, "and we're going to continue to do it."
