Goldman buys online investment bank Epoch
by David Weidner
Posted 05:50 PM EST, Jun-14-2001
On-line investment bank Epoch Partners Inc. is joining the Wall Street fold, but it is doubtful star technology banker Scott Ryles will be making the trip.
Epoch agreed to a buyout by Goldman Sachs Group Inc., the companies said June 14. Epoch is run by Ryles, who until 1999 led the technology banking effort at Merrill Lynch & Co.
Though a purchase price was not disclosed, sources said San Francisco-based Epoch fetched somewhere between $100 million and $250 million.
For Ryles, 42, the acquisition brings some uncertainty, as he will not remain with Epoch when the deal closes, a source said. Ryles did not return calls.
In some ways, the sale marks a disappointing end for Epoch and its owners, Ameritrade Holding Corp., TD Waterhouse Group Inc. and Charles Schwab & Co., which founded the online investment bank in 1999 to distribute IPOs to their retail customers.
Epoch, which had received venture capital from Benchmark Capital, Kleiner Perkins Caulfield & Byers and Trident Capital at its startup, failed to turn a profit this year and could not secure fresh funding, a source said.
Epoch's demise comes as little surprise, said Joe Hammer, a managing director in the capital markets group at the Boston-based equity boutique Adams Harkness & Hill Inc. Not only did Epoch suffer from a dry up in IPO issues, its premise that IPOs needed to be distributed to the masses never caught on.
"Everybody was complaining the retail investor isn't getting into IPOs," Hammer said. "But IPOs are an investment unto themselves. It's a very narrow market. Retail investors are not the best customers."
Still, Goldman, a firm without a big retail brokerage, saw value in Epoch's platform. The white-shoe investment bank has been actively pursuing any company with a strong electronic trading capability, having spent $7.5 billion last September to buy stock specialist and trade-clearing firm Spear, Leeds & Kellogg lp.
The deal for Epoch gives Goldman the exclusive right to distribute equity offerings, including IPOs, to Schwab and TD Waterhouse customers. Goldman ranks as the No. 4 IPO underwriter, year to date, managing six deals valued at a combined $3.3 billion, according to Dealogic (Computasoft Research/CommScan).
"Goldman has been buying a lot of distribution and trading companies," Hammer said. "They want to control the trading floor."
Even if IPO distribution fortunes remain slow, Goldman can still bank on Epoch's technology and its relationships with Schwab, Waterhouse and Ameritrade.
Even one Goldman source said, "this deal is about distribution and some very cool technology."
David Menlow, president of IPOFinancial.com, a Newark, N.J.-based IPO research company, doubts that Goldman's interest in retail IPO investing is scant.
"Big brokers don't want them (retail investors) in IPOs because they can't control them," Menlow said. "They're add-ons in good times. But they're more often the source for institutional bailouts," buying IPO shares after the prices have risen.
Both Goldman and Epoch used in-house advisers. Spokesmen for those companies declined to name the executives who worked on the deal.
Epoch got off to a slow start. It co-managed just three IPOs in 2000, a year when more than 240 technology companies had their debuts, according to Thomson Financial Securities Data.
Its retail efforts matched those at Wit SoundView Group Inc. and W.R Hambrecht & Co., but unlike those brokers, Epoch had no traditional businesses on which to fall back.
Wall Street watchers are now likely to fix their eyes on Ryles, who moved west in 1996 and helped build Merrill Lynch's tech practice in Palo Alto, Calif.
When he departed the firm two years ago, he was one of a handful of big-time players such as Citigroup Inc.'s Heidi Miller, who left old economy jobs for tech startups. |
