Tech World's Sorrow Shrivels Work for Bankers
By Jeffrey Goldfarb
Sat May 18, 7:15 AM ET
MENLO PARK, Calif. (Reuters) - The easy, gridlock-free drive from San Francisco to Menlo Park these days is perhaps the most emblematic sign of the times in this high-tech mecca.
Technology visionaries used to inch impatiently in traffic on southbound Interstate 280 for the 35 miles toward Menlo's gold-paved Sand Hill Road, where venture capital firms financed their dreams and investment banks took them public and shopped their companies to eager buyers.
Today, though, the brown, sun-scorched grass along the highway symbolizes just how much things have dried up.
The brown placards that festoon marquees of low-rise commercial complexes on Sand Hill -- once riddled with the bland names of investment firms that inevitably incorporated the word "Capital" -- are increasingly blank. "Space for lease" signs instead blight the three-mile strip.
Silicon Valley's high-powered deal makers have seen a staggering drop in business. Just a short three years ago, investment bankers with technology expertise frantically were rushing initial public offerings to market and forcing lucrative, but often ill-conceived, mergers (news - web sites). Now, they just try to help clients survive.
"We're grief workers now instead of empire builders," lamented one tech banker, who requested anonymity to keep from alienating companies he advises and other potential clients.
The statistics are support the anecdotal tales of woe.
Investment banks advised on just 81 technology deals worth about $7.8 billion in first quarter 2002 compared with 146 deals worth about $94.7 billion in first quarter 1999, according to market research firm Thomson Financial.
Dismal earnings and a hazy outlook on Corporate America's technology spending plans have left chief executives wary of what acquisitions could do to their already shaky stocks.
"M&A is out of favor with investors," said another California-based investment banker. "The market hates it."
NEW AGENDA
Instead of juggling four or five deals at a time as they did just a few years ago, merger (news - web sites) advises instead spend their time coddling clients, or "building relationships," as many of them call it.
By staying in close contact with companies, bankers hope to better shape and understand their clients' business models and long-term plans. That way, when confidence returns, they will have gained trust and proven themselves to CEOs.
That has been tough to do, though, as Wall Street firms have slashed their banker ranks, either by cutting jobs or by reshuffling the sectors in which they work. Turnover can hurt their chances to retain business.
"I had one client tell me we were hired because we were the only ones pitching business with the same folks who went in two years ago," one banker said.
Specialized banks, such as Robertson Stephens and Broadview International, that once catered to tech start-ups, have been hit hard, too, as their larger rivals have swooped in to handle the small deals they previously would have ignored. Both banks have held talks with potential buyers.
"I haven't seen a Robbie Stephens banker at a deal in 18 months," one banker said.
The few deals struck take far longer to get approval as directors scrutinize financials and management looks around every corner for any signs of instability. Bankers say conference calls that took an hour now take five hours and deals that took six weeks to close now take four months.
Many executives finally have accepted that their stocks will trade for about $5 a share, not $100, and are entertaining offers, bankers report. However, buyers are still waiting for some hint of a turnaround in profits or tech spending to even consider acquiring a rival.
"I have a hard time recommending to a lot of people that they buy something," one investment banker confessed.
GRIM REALITY
The 200 biggest public companies in the San Francisco area, most of which are technology firms, lost a combined $77.7 billion last year, a stunning reversal from the combined $116.2 billion profit they booked the previous year, the San Francisco Chronicle reported last week.
The profound impact of those numbers stamped on their faces, sadsack investors moped around one of the industry's biggest and oldest conferences last week.
Attendance at the 30th annual JP Morgan H&Q technology conference plummeted 23 percent from its peak last year to 3,260 people, the lowest figure since 1994 -- before the world discovered the Internet.
"This is some of the worst sentiment I've ever seen," said Gary Nackerson of Firelake Research. "In a lot of ways, it's even worse than last September."
Question-and-answer sessions between investors and corporate management were testy.
Nackerson and others complained that executives focused their paltry upbeat comments on tiny industry segments and avoided discussing the critical broader markets.
During the past two years of the bear market, companies and investors have tried to maintain a smiling face and remain confident that the future would be bright. But now, a deep sense of melancholy and nostalgia have set in.
In a standing-room-only presentation by outgoing Sun Microsystems Inc. President Ed Zander, the microphone failed, the air-conditioning shut down and waiters, in an effort to finish promptly, whisked away the cookies and other afternoon treats.
"No air, no food, no fun," Zander muttered. "Remember the good old days?" |
