To bolster its capital markets business, First Security Corp. of Salt Lake City said Wednesday that it would buy Van Kasper & Co., a San Francisco investment bank, for $100 million in cash and stock.
The deal, which is expected to close in early 1999, would bring the Utah banking company an equity underwriting capability as well as a sizable private client business.
Van Kasper also has an investments subsidiary with $500 million under management.
"Many of our (corporate) customers need a broader range of products and services. They get bigger and they move on," said Scott Ulbrich, First Security's chief financial officer. "The acquisition of Van Kasper will allow us to continue to serve them."
First Security, a bank holding company with $19.4 billion of assets, established a so-called section 20 unit in January, when it won approval from the Federal Reserve to underwrite and deal in certain municipal revenue bonds and other debt securities.
The company has long said it wanted to add equity underwriting to its capital markets menu but would buy that capability rather than build it. A similar strategy guided larger banking companies, including BankBoston Corp. and NationsBank Corp., that have recently purchased investment banking firms.
Mr. Ulbrich said First Security and its financial adviser, J.P. Morgan & Co., looked at other recent acquisitions of broker-dealers by commercial banks when structuring the Van Kasper deal. The purchase price includes a $10 million cash retention pool to be paid to key Van Kasper employees over a four-year period.
A portion of the remaining $90 million would be paid in First Security stock up-front, followed by deferred stock payments made upon the achievement of set performance goals.
Van Kasper, which was founded in 1978, has 250 employees, including 80 brokers, said Wayne Scott, its chief financial officer. The firm does not disclose the size of its equities business nor its private client services unit.
The investment bank would operate as a separate division of First Security Capital Markets Inc., First Security's section 20 unit. It would remain based in San Francisco and its top executives, including president and chief executive officer Van Kasper, would stay on board.
"This is not a cost-savings play," Mr. Ulbrich said. "We're looking to generate more revenue."
Mr. Ulbrich said the two capital markets companies have complementary strengths.
"First Security is strong in municipal bonds and fixed-income-an area that Van Kasper has little presence in," he said. "It's really a great fit."
First Security bills itself as the largest locally based underwriter of municipal securities in the region from Arizona to Washington, excluding California. It operates 315 branches in Utah, California, Idaho, Nevada, Oregon, New Mexico, and Wyoming.
The company views buying Van Kasper as a way not only to expand its investment banking menu, but also to enhance the brokerage services it offers affluent customers, Mr. Ulbrich said. There are 170,000 affluent households in First Security's market, excluding California, he said.