"Focus, focus, focus."
That's how BankBoston Corp. chairman Charles K. Gifford sums up the strategy behind the company's deal last week to buy investment bank Robertson Stephens from BankAmerica Corp. for $400 million. BankBoston would also earmark $413 million to retain and reward key employees of the San Francisco firm.
In an interview during the International Monetary Conference here, Mr. Gifford said the transaction, scheduled to close in the fourth quarter, would bolster BankBoston's already-thriving business of providing financial services to noninvestment-grade companies. And he saw potential for Robertson Stephens to play a role in the $71.4 billion-asset company's showcase Latin America business.
"We have not put a value on what Robertson Stephens can do for us in Latin America," Mr. Gifford said. "But with paper originating in Latin America, they can help us very strongly on distribution."
At a time when many bankers are looking to expand their geographic and product reach, Mr. Gifford clearly prefers specialization.
"I'm so increasingly fascinated with what a truly focused company can do," Mr. Gifford said. "Rather than broaden, we're trying to narrow our focus on what we do well."
Mr. Gifford said the decision to go after Robertson Stephens was "not driven by a desire to be an investment bank." Rather, he said, BankBoston was "driven by what we think we need for our customers"-noninvestment-grade loan and underwriting clients who account for 45% to 50% of BankBoston's profits.
Though BankBoston has looked at other investment banking acquisitions, "in retrospect, Robertson Stephens was clearly the best fit," Mr. Gifford said. Indeed, the companies share "a number of customers," particularly in the high-technology field, where both are solidly established.
But there are also differences. "They're much stronger in health care; we have media, transportation, and utilities." He said it is likely that BankBoston would build its health care lending, while Robertson Stephens would boost media, transportation, and utilities underwriting.
And though Robertson Stephens has a solid presence in San Francisco and Boston, its New York operation is small, Mr. Gifford said. "No doubt, we will beef up their New York office."
Mr. Gifford quarreled with press reports that put the deal price at $800 million, calling it "a ridiculous number."
"Half the money is being spent for retention and performance, and two- thirds of that is on a performance basis," Mr. Gifford said. "It's far and away the best structure for a deal of this kind."
He said the price cited by BankBoston-$550 million in present value-is the right way to look at the deal. That price, he said, is consistent with the going rate for investment banks, 14 to 16 times earnings.
Mr. Gifford said discussions of the price have been muddled because "in prior deals, both the purchase price and the retention pool was going to the same people." But now that Robertson Stephens is being sold for a second time, there were two parties to satisfy: BankAmerica, the seller, and the executives of Robertson Stephens, whom BankBoston is eager to retain.
Of the $413 million being set aside, about $75 million would be paid in two installments-upon closing and in February 1999-to key employees, Mr. Gifford said. Another $100 million would be paid in the form of stock options in October 1999 and October 2000. "Everything else is retention and performance bonuses," Mr. Gifford said, to be paid out through 2002.
He said plump pay packets are a cost of doing business as banks push into new fields.
"If we think we're going to squeeze investment bankers into traditional commercial banking compensation, we're going to lose the opportunity," Mr. Gifford said. "Competition for the best people is fierce."
Indeed, he said, such pay packages are not entirely alien to banks active in the capital markets. For instance, the compensation scheme for BankBoston's corporate lenders looks more like Wall Street pay than banker pay. "We already had bonuses, but we've made the criteria much more specific and added significant dollars."