Wit Capital Group, one of the pioneers of online investment banking, will buy the much larger research firm SoundView Technology Group--another sign of the rapid ascendance of the online world on Wall Street.
Wit, founded in 1996 by lawyer and former microbrewer Andrew Klein, said Monday it will pay $320 million in stock for 20-year-old SoundView, which was formed in 1979 and spun off from Gartner Group in 1985.
Adding SoundView would almost quadruple Wit's revenue and could make the firm profitable sooner than analysts' current projection of mid-2001.
And because SoundView has 450 institutional clients, the transaction would allow Wit--which now primarily distributes stock deals to individual investors as a junior partner to larger underwriters--to make a stronger pitch to corporations, said Ron Readmond, co-chief executive.
"Shares are never going to be sold only to individual investors, so it makes us much more attractive to potential clients," he said.
In online underwriting, "We think we can consistently get up to 25% to 30% of the fees and a million shares or more" to distribute to investors with the help of SoundView, up from 10% to 15% and an average of 200,000 shares today, Readmond said.
Investors cheered the deal, pushing Wit shares up $4.81 to $22.38 on Nasdaq. The company itself went public at $9 a share on June 4.
SoundView would add 30 analysts and 23 investment bankers to Wit's 14 analysts and 35 bankers and more than quadruple the number of companies covered to 200.
In particular, Wit will be hoping to get a larger share of popular technology company public offerings to distribute to its base of 53,000 online-brokerage customers.
Companies hire Wit and other bankers in large part based on its promise to publish research reports after they go public.
New York-based Wit would pay between 17.2 million and 20.6 million shares for employee-owned SoundView, depending on Wit's share price. Based on SoundView's results over the last 12 months, Wit would pay about 2.3 times annual per-share revenue and 16.8 times annual per-share profit in the transaction.
Stamford, Conn.-based SoundView had about $100 million in revenue in the first nine months of the year, almost four times Wit's figure and up from $84 million for all of 1998. SoundView makes money through advising on transactions, executing trades and selling research on technology companies.
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Wit's Wild Ride
Wit Capital's shares have dropped dramatically after early gains since their initial public offering in June. Weekly closes and latest:
Source: Bridge News