Morgan Stanley is starting to win more business from smaller private-equity firms after forming a group of bankers to focus on the sector and generate more fee revenue from buyouts.
The New York company has advised on seven closed or pending deals so far this year from firms that manage funds of less than $5 billion, said Joe Purcell, the managing director of the middle-market advisory group formed last year.
Morgan Stanley's five-person team has attracted business from clients such as Rhone Group LLC, Tailwind Capital Group LLC and JLL Partners Inc.
"It's often considered lower profile than covering the largest sponsors, but middle-market private equity can be very profitable for us," Purcell said in an interview earlier this month.
The focus on smaller firms puts Morgan Stanley in competition with boutique investment banks as well as some larger ones such as Barclays Capital, Credit Suisse Group AG and Deutsche Bank AG.
Morgan Stanley ranked seventh among banks in terms of fees that buyout firms paid for financial services such as acquisitions and loan underwriting last year, according to the New York consultant Freeman & Co.
In all corporate and private-equity takeovers, Morgan Stanley was the top adviser globally in 2010, according to data compiled by Bloomberg.
Financial advisers are trying to capitalize on the so-called middle market after buyout funds ranging from $1 billion to $5 billion in size grew to account for about 69% of the total amount raised last year, compared with about 35% in 2009, according to the researcher Pitchbook Data Inc.
Traditionally banking companiess have placed a greater emphasis on the largest 20 firms, such as TPG Capital and KKR & Co., since their deals generated about 48% of the $7.65 billion in fees that buyout firms paid banks last year, according to Freeman.
Still, that is still less than half of the $16.3 billion banks reaped in fees at the height of buyout dealmaking four years ago.
Morgan Stanley meanwhile is optimistic that it can fill some of that gap. For the first time last month, the company conducted a conference for about 100 prospective middle-market private-equity clients.
Robert Kindler, Morgan Stanley's global head of mergers and acquisitions, recruited Purcell last year from JPMorgan Chase & Co. in New York, where Purcell ran a similar team.
"Middle-market firms selling businesses benefit from Morgan Stanley's strong relationships with strategic buyers," Kindler said in an interview.
Separately, Morgan Stanley said Friday that it would move forward with plans to buy the portion of the Smith Barney brokerage business it does not already own after regulators completed a review of the company’s financial strength.
"The firm is comfortable with the results of the Federal Reserve's Capital Plan Review and our capital position," said company spokesman Mark Lake in an e-mailed statement.
"As previously stated, our capital allocation priorities are the continued investment in our businesses and purchasing the rest of Morgan Stanley Smith Barney," Lake said.
The spokesman's statement made no reference to dividends or repurchases.
