For two decades, in up markets and down, the San Francisco boutique Weisel founded in 1978 never had an unprofitable quarter; he always found ways to make money. And when he and his partners, who drew paltry salaries in return for a percentage of the profits, sold Montgomery to Bank of America for $1.2 billion in 1997, they got rich. Weisel made some $120 million.
Lately, however, Weisel’s Midas touch has faltered.
Thomas Weisel Partners, the San Francisco firm he created after leaving BofA in 1998 following a clash with management, is struggling. Its core businesses of underwriting stock issues and giving merger advice to fast-growing companies are suffering in the industrywide deal drought. Quarterly profit distributions -- intended to make up the bulk of the 60-odd partners’ compensation -- have been paid out only twice since the start of 2001, say knowledgeable sources. In other words, Weisel Partners hasn’t turned a profit for most of the past two and a half years. (Weisel wasn’t available for an interview; his chief operating officer, Blake Jorgensen, declined to comment.)
Weisel Partners’ unhappy state is a far cry from its heady early days. In 1999 and 2000, with only a shoestring staff, the firm lead-managed 17 equity offerings worth a total of $2.2 billion and advised on 52 mergers and acquisitions. Talent flocked to Weisel Partners despite the meager $60,000 base salary, lured by the promise of sharing in the partnership’s seemingly limitless profit potential and perhaps someday in the proceeds from a sale or IPO.
Yet today the firm is barely scraping by. According to Dealogic, since the beginning of 2001, Weisel Partners has led just 18 stock offerings worth a combined $1.6 billion and 43 M&A deals, only one of which tallied more than $1 billion. Worse, the firm has lead-managed only four IPOs -- which carry the juiciest underwriting fees -- compared with 12 in its first two years. Its only reliable revenue producer is institutional brokerage, a business whose margins are razor-thin and shrinking.
Weisel Partners has laid off about 300 people -- more than a third of its peak workforce of 820 in mid-2001 -- and shuttered its London office. But it has also had to triple the base pay of partners, to $200,000, to offset the profit dearth. Still, the troops are restless. “This is a partnership that is only held together by money,” says one former executive. “So if you can’t deliver the money, there goes the partnership.”
Mark Shafir, whom Weisel recruited from Merrill Lynch in 1999 to head investment banking, left in April to become head of M&A at Lehman Brothers. Other departed partners include Amanda Duckworth, Mike Ogborne, David Readerman and James Savage.
Adding to Weisel Partners’ woes, a regulatory cloud has hung over the firm ever since it pulled out of Wall Street’s global research settlement. Sources say that it had agreed to pay a $12.5 million penalty -- negotiated down from $60 million, a sum that the firm argued would have broken it -- but balked at having to acknowledge that it had fraudulently published tainted research to cultivate investment banking business. Negotiations with regulators are proceeding slowly, and rivals are sure to point out to potential clients that the firm’s settlement status remains uncertain.
Thom Weisel’s connections and skill ensure that his firm will benefit if the IPO and M&A markets sustain their tenuous recoveries. Late last month Weisel Partners advised software concern Business Objects on its $820 million acquisition of Crystal Decisions. But the firm needs rainmakers -- a former partner dismisses the remaining bankers as “mistmakers” -- as well as a regulatory settlement. Right now Weisel’s most important deal may be the one with the authorities.
