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[B] Wit CEO: SoundView to "accelerate profitability" of Wit
--Wit CEO: Deal includes $25 mln employee retention pool
--Wit: "no intention" of ending SoundView name in near term
By Cameron Dueck, Bridge News
New York--Nov 1--Profitability just came a lot closer for Wit Capital Group as a result of its purchase of SoundView Technology Group. Analysts say the deal could make Wit profitable in the near future while SoundView's institutional client base ramps up Wit's development into a full-service investment bank.
* * *
Ron Readmond, co-chief executive officer of New York based-Wit, told
reporters and analysts in a conference call that SoundView's profitability will
boost Wit's bottom line.
"We expect the combined entity will accelerate profitability for Wit," said
Readmond. "SoundView is growing profits at a more rapid rate than revenues."
SoundView, an employee-owned, investment banking firm, had revenues of more
than $100 million in the first 9 month of 1999, with total revenues of $84
million in 1998 and $60 million in 1997.
Readmond said it is premature to speculate by what value model investors
will measure the new entity as it broadens it focus from the Internet sector.
But he said that the although there will be few expense savings, the deal is
"highly accretive."
Amy Butte, an analyst with Bear Stearns, said Wit could show a profit as
early as next year.
Wit reported a third quarter net loss of $5.1 million, or 8 cents a share,
compared with $2.3 million, or 33 cents, in the year-ago quarter. For the 9
months ended Sep 30, Wit reported a net loss of $12.8 million, or 40 cents per
share.
Geoff Beard, research analyst at Thomas Weisel, said while Wit has focused
on retail investors in an Internet-centered business, SoundView brings broad
coverage and institutional clients to the mix.
"They have institutional clients, with broader research coverage of
technology sectors that Wit didn't cover, and in that respect, it is very
complimentary--especially when you couple that with the deal being accretive on
a revenue and EPS basis," Beard said.
Investors applauded the news, pushing Wit shares sharply higher in heavy
volume. Wit shares were recently up 5 3/16, or 30% at 22 3/4. Volume was far
exceeding average activity levels in the stock.
The stock has been trading in range of 15 1/2 to 24 since late July.
Wit today announced it will acquire SoundView for approximately $320 million
in newly issued stock and options. (See Story .15285)
"The total being paid represents 16.8 times the trailing net income and 2.3
times the trailing 12-month revenues," said Mark Loehr, head of investment
banking at Wit.
SoundView offers Wit much more than additional revenues and profits, it also
gives the fledgling investment bank a solid institutional client base, something
Wit needed to expand its underwriting business
.
"SoundView opportunistically realized that the Internet is having a
significant impact on the financial sector, and this is an outstanding
opportunity to embrace that trend," said Thomas Weisel's Beard.
Readmond said SoundView's 450 institutional customers will enhance Wit's
distribution channels, and "adds value" for issuers, but that Wit remains loyal
to its retail investors.
"Wit has customer relationships with individual investors, SoundView has
relationships with institutional investors, but I don't think our objective
going forward is to gain more institutional investors," Readmond said.
This deal boosts Wit's number of research analysts to 44 from 14, while the
number of investment bankers grows to 58 from 35.
SoundView, which was founded in 1979 as a part of Gartner Group and was spun
off in 1985, has a strong brand name in venture capital, investment banking and
analysis circles.
"We have no intention of eliminating the brand name in the near term, and
plan to leverage the brand over the next year," Readmond said.
Readmond said while the two broker-dealers will operate in parallel over the
near term, the longer-term plan is to integrate them.
Wit officials said the firm has created a $25 million pool of cash to entice
SoundView employees to stay with the combined firm.
Wit has been on a buying spree of late. The firm announced it will buy a 12%
stake in Ireland's enba for $31 million in stock as part of its European
expansion. Wi
t also recently raised $30.3 million in a second round of financing for Wit
Japan. End
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[symbols:US;WITC]
Nov-01-1999 12:54 GMT
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