equity underwriting business, the nation's third-largest bank holding company said Tuesday that it had agreed to buy Hambrecht & Quist Group Inc. for $1.35 billion in cash.

The San Francisco-based investment bank specializes in emerging media, telecommunications, information technology, and Internet companies, complementing Chase's more established media and telecommunications clients. The two companies also expect to enhance each other's venture capital and other private equity capabilities.

The combination is expected to bolster Chase's cross-selling to companies in the "new economy" -- the high-growth, entrepreneurial firms that have sprouted up in Silicon Valley and other regions. Hambrecht & Quist counts such companies as TheStreet.com, Perot Systems Corp., and Intuit Inc. as clients.

Chase executives said Hambrecht & Quist's focus on the technology sector was a major attraction. "We feel strongly that this is the right investment at the right time in the right space," Marc J. Shapiro, Chase's vice chairman in charge of finance and risk management, told analysts in a conference call.

Hambrecht & Quist's name would change to Chase Securities West and it would maintain its current headquarters.

Market watchers said the deal does not fulfill Chase's long-held strategy of finding a merger partner that could transform its business overnight. Chase executives have long said they felt no pressure to enter the business of equity underwriting, even though they recognized it as an obvious void within their investment banking group.

As recently as last year, Chase senior executives said they would not be interested in a deal for a mid-tier boutique, adding fuel to market rumors of possible combinations with Merrill Lynch & Co. or Morgan Stanley Dean Witter & Co.

Hambrecht & Quist "doesn't get them where they want to be," said Bradley Ball, an analyst at Credit Suisse First Boston. "In some ways it reflects how difficult it is to get the blockbuster deal done."

A change of command at Chase earlier this year may also have signaled a shift in the company's direction, analysts said.

William B. Harrison Jr., formerly vice chairman in charge of global wholesale banking, took over as chief executive officer in June and has since put a greater emphasis on technology projects as well as building equity and asset management capabilities. In a statement Tuesday he called the acquisition agreement "an important strategic move for Chase" and "an important step in developing a public equities practice in a way that has a positive return to our shareholders."

In August, Mr. Harrison hired Neal S. Garonzik, a former head of securities operations at Morgan Stanley, to head up asset management as well as steer the bank's strategy in equity underwriting.

According to Daniel H. Case 3d, chairman and chief executive officer of Hambrecht & Quist, the investment bank was not trying to auction itself off. Hambrecht & Quist contacted Mr. Harrison about six months ago to discuss the possibility of doing a deal, Mr. Case said.

Mr. Case stated that his firm "is choosing a partner from strength," and he called Chase "the strongest possible partner."

Chase executives acknowledged that Tuesday's announcement leaves the door open for future acquisitions. "It is not a total solution," Mr. Shapiro said. "It does not preclude any (other) opportunity we might have."

Mr. Shapiro said the New York banking company would not try to pursue the kind of aggressive, internal building program that has proven costly at other banking companies, including J.P. Morgan & Co. "We are not about to embark on a campaign that is a field-of-dreams vision for future revenue growth," Mr. Shapiro said.

Analysts said they liked the transaction because it avoids the integration risk that would be associated with a huge merger. "The odds of getting a smaller deal like this done are better," said David Berry, director of research at Keefe, Bruyette & Woods Inc.

Mr. Case is to become chairman and CEO of Chase Securities West and head of global technology. He will report to James B. Lee Jr., Chase's vice chairman in charge of investment banking.

Mr. Lee said the bank could see instant revenue gains as a result of the deal.

"There are customers of ours today that would put us into equity deals as a result of this acquisition," he said, adding, "you can imagine the pent-up demand."

Chase is setting up a $200 million retention pool for Hambrecht & Quist employees. The payouts will be in Chase stock over a four-year period.

In addition to San Francisco, Hambrecht & Quist has operations in New York, Boston, Atlanta, London, Tel Aviv, and Tokyo. Mr. Case said operations in San Francisco, New York, and Boston would expand over time.

Market watchers said the deal, which equals about $50 per Hambrecht & Quist share, was priced in line with similar bank-brokerage combinations in the past. Chase said it will make a cash tender offer within five days and expects to close the transaction in the fourth quarter, pending regulatory and shareholder approvals.

Chase Securities Inc. advised Chase. Hambrecht & Quist LLC advised the investment bank.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.