CHARLOTTE, N.C. First Union Securities has reorganized its mergers and acquisitions unit, trimming some costs but also trying an approach it hopes will boost business from midsize companies.
An undisclosed number of jobs were cut in the reorganization, which splits into three groups an M&A operation that was built through the merger of the banking parents own unit with others acquired in recent years. The shift eliminates a staffing model adopted after First Union bought the Charlotte boutique investment bank Bowles Hollowell Conner & Co. in 1998. The move also may finally bury the Bowles Hollowell name, which First Union executives said they dropped two years ago but which has stuck in the industry and even internally.
Mark Mealy, a Bowles Hollowell veteran who became the banking companys head of M&A a year ago, said he hopes the reorganization will improve financial results and help win more deals. First, he said, instead of being all things to all people, were positioning ourselves.
He said the companys goal is to become more productive with its base of middle-market clients and to become a best-of-class M&A shop in this model.
The moves may also recognize that less established names on Wall Street, such as First Union, are still struggling to compete for the biggest, most lucrative assignments. Many of the smaller participants in the M&A advisory field have conceded the large corporate business to so-called bulge-bracket firms like Goldman Sachs Group, Morgan Stanley Dean Witter & Co., and Merrill Lynch & Co.
Mr. Mealy said that as Wall Streets big investment banks get bigger through consolidation, First Union can win a bigger share of the midsize deals that its larger competitors cannot handle.
The changes come as the investment banks parent, Charlotte-based First Union Corp., continues a review of its capital markets business that began last fall. And it follows a corporate restructuring announced last summer.
First Union has spent heavily in recent years to build its capital markets group. The M&A unit combines First Unions own operation, started in the mid-1990s, with Bowles Hollowell and the 1998 acquisition of investment bank Wheat First Butcher Singer Inc. in Richmond, Va.
The company points to its investment bank as a growth area, but some analysts say the business has yet to become a major contributor.
Marni Pont ODoherty, an analyst at Keefe, Bruyette & Woods Inc. in New York, said the pressure is on. The hot seat that was occupied by the general bank is now occupied by the investment banking business, she said. Their expense base [in capital markets] has stayed relatively flat, but revenues have come down.
First Unions M&A group handled about 55 deals last year, averaging in value from about $60 million to $500 million, Mr. Mealy said. He expects similar results in 2001, in part because of the current business climate. But next year is really pivotal, he said. We could easily double our business in the next couple of years.
Indeed, First Union executives see it as an important part of the companys future, especially once it completes its planned merger with North Carolina rival Wachovia Corp. In announcing the merger, chairman and chief executive G. Kennedy Thompson said Wachovia would expand the groups potential customer base.
First Union has built full-service investment banking capabilities, Mr. Thompson said on April 16. Now we will have more customers. We will be focused on middle-market growth companies. Were not trying to compete with the Goldman Sachs and Morgan Stanleys of the world.
The new model Mr. Mealy described is a departure from the structure First Union inherited from Bowles Hollowell, which was built around helping middle-market clients sell their businesses.
Though some bankers will continue to help sell companies in a smaller divestiture group, others now will work side-by-side with corporate finance experts on what Mr. Mealy called integrated M&A teams, similar to the structure of Wall Street banks. They will target five key industries where significant M&A activity is expected to continue: telecommunications, media, technology, health-care, and financial services.
A third set of bankers will form a floating small group of tactical advisers, who can be brought in as needed to advise big corporate customers in other industries.
The idea is to tailor the banks expertise to the needs of its customers. We sort of assumed that all business looked the same, but it really doesnt, he said.