Combined firm now has $18 billion in equity capital behind its traditional investment banking muscle.
When it comes to growth strategies for companies going public and staying ahead of the financial game, BancAmerica Robertson Stephens (BARS) makes its mark on Wall Street and with its investors. In a year of big mergers and acquisitions, Bank America Corp. bought Robertson Stephens & Co. in June for $540 million to become BancAmerica Robertson Stephens. The merger combines Robertson Stephens' investment knowledge and BankAmerica's capital and blue-chip clientele.
The San Francisco-based firm was established in 1978 and presently has over 900 employees after the 1997 merger. BARS is one of the nation's leading underwriters of emerging growth companies in the technology, healthcare, retail, consumer products and real estate sectors. Investor interest in the real estate industry, as well as BARS' involvement has been increasing with improving real estate market fundamentals and what BARS believes to be long-term uptrends in real estate values.
In most major metropolitan markets, BARS expects demand for multifamily, office, retail, self-storage, warehouse and manufactured home sites to increase in the face of limited new construction. BancAmerica Robertson Stephens' real estate specialists foresee a combination of falling vacancy rates, rising rents and limited new construction leading to a trend of rising property values.
In 1996, the firm completed 125 equity offerings (IPOs, follow-ons and convertibles) valued at $8.6 billion. Also, BARS completed 50 advisory transactions valued at more than $9 billion and 15 private placements valued at $180 million. Since the merger, BARS has moved forward to increase its role in debt and equity financing through the consolidation of the two financial giants.
"Now that the acquisition is complete, there is simply no other banking company in the nation that has more to offer clients in the growth industries," says Sanford R. Robertson, founding partner of Robertson Stephens. "We look forward to developing other industries together. As a leading investment banking firm in a number of emerging industries, BancAmerica Robertson Stephens together brings a team of experts in equity and convertible securities underwriting, industry research, industry-driven merger and acquisition advice, and experience at bringing equity issues to the public and private sectors. The firm's suite of mutual funds recently ranked in the top 2% of all funds based on one- and three-year performances."
The merger gives BARS an extensive database of clients and a higher volume of finance to place deals into the public and private sectors. Prior to the merger, BankAmerica Corp. had a significant market capital base of more than $45 billion, a global network in 37 countries, strong debt raising capabilities and investment strategies. The move integrates BARS into the nation's third-largest bank aiming to boost its earnings and develop new markets.
"With the consolidation of capital resources, the acquisition gives us a major source of capital to do business with. The company has approximately $18 billion of equity capital that it can use to commit to transactions for real estate companies," says Jay P. Leupp, a principal and senior research analyst at BARS. "For us, it helps us as an investment bank; we can commit more capital to transactions, be they institutional investors or pension funds. Before the merger, we had worked with an equity capital base of about $100 million, today we work with a base of approximately $18 billion. This has made us tremendously more competitive in our marketplace."
At present, BARS has a handle on new sources of financing that it did not possess prior to the merger. "There's not just a reliance upon the equity capital, but upon debt capital. And when we were trying to compete, prior to the merger, this was competing with one hand tied behind our back, because we could not compete for debt," says Donald H. Ankeny, a principal and head of the real estate investment group at BARS. "So, I think a huge competitive advantage has come our way with this transaction and the ability to do both debt and equity."
At the core of BARS is an extensive research department, with more than 45 senior research analysts covering 525 companies. With BARS' demanding selection criteria, constant education of its sales force and quality dialogue with investors, the firm is able to provide good valuation for clients and returns for investors.
"On the research side, we follow office, industrial and apartment sectors heavily and we feel that gives us a leg up on following companies in those sectors. We also draw on our securities analysis expertise, as we follow some non-traditional real estate categories, such as self-storage, golf course and manufactured home REITs," says Leupp. "We also follow diversified REITs with a focus toward both growth and total return with some cases value investing."
The REIT market is hot in 1997 and BARS is an expert in this arena. What does the firm see for this segment of the financial realm? "The REIT industry will both expand, from a securitization standpoint, as well as consolidate. In other words, the equity capitalization market is about $120 billion today, up from about $10 billion less than five years ago, and I think in the next 2.5 years probably will reach the $400 billion to $500 billion mark," says Ankeny. "It's a natural evolution to get into a couple sectors of the REIT arena that we have not been in historically. I think you'll see more involvement by our firm in the retail, hospitality and healthcare REITs. We now have more resources to grow with since the merger, so you'll see more bankers and research analysts at BARS."
BARS has been successful with initial public offerings for highly fragmented markets such as golf courses, self-storage facilities and manufactured homes. "We like those areas and will continue to seek opportunity in them because they are all highly-fragmented industries, where the top 10 owners own 15% or less of the properties in the sector. And they're also unsecuritized. In other words, a very small percentage of the assets are owned by REITs," says Leupp. "We think the opportunities for all these property types are extremely promising, and we think these will be the consolidators in these businesses. But at the same time, we will also have a focus where we have a research edge in the office, industrial and multifamily sectors, as we have done all along."
As an innovator in investment banking, BARS has developed a relationship with Palo Alto, Calif.-based E*TRADE Group to offer its clientele information about wealth-building tools, opportunity for ground floor investment in IPOs and secondary offerings, and in-depth equity research for understanding high-growth companies, industries and market developments over the Internet. "We intend to use the power of the Internet for the benefit of our client companies while remaining dedicated to the firm's core business," says Michael G. McCaffery, president and CEO at BARS. "This strategic alliance will complement the growth opportunities created by the transaction with BankAmerica."
Since the merger, a separate branch has been developed within BARS that handles mutual funds and venture capital: Robertson Stephens Investment Management (RSIM), headed by G. Randy Hecht. Combined assets under management total approximately $68 billion. As for mutual funds, RSIM has more than $5 billion under management with $3.2 billion in public funds and $1.8 billion in private funds. The firm manages eight venture capital funds totaling nearly $600 million while investing in more than 250 companies in several emerging growth industries.