Sector Watch: Small-cap financial firms

Global economic growth, low inflation and interest rates, and a surge in transnational investing are creating an ideal market for big financial deals. Mergers, buyouts and IPOs are occurring in record numbers and unprecedented sizes. Goldman Sachs officers indicate their company’s IPO pipeline is bigger than any time since the Internet boom, while Carlyle Group executives predict the market will soon see $100 billion in private equity deals. In 2007, the value of global mergers and acquisitions could reach $2.9 trillion, its highest level since 2000. The value of U.S. mutual funds could exceed $10 trillion, a 66% increase in four years. 

The M&A boom is creating exceptional growth opportunities for boutique investment banking firms such as Evercore Partners Inc. (NYSE: EVR). Evercore Partners is primarily in the consulting business, helping large multinational corporations negotiate and complete mergers, acquisitions and spin-offs. This firm is successfully positioned as a boutique investment bank and a viable alternative to Wall Street’s major banks. These larger banks typically pitch clients on a variety of services such as loans and private equity deals in addition to consulting, sometimes creating conflicts of interest that make their advice appear less than objective. Corporate boardrooms, eager to avoid regulatory scrutiny and allegations of conflicts of interest, are increasingly hiring specialized firms such as Evercore Partners to avoid these bias issues. 

While small compared to mainstream investment banks such as Goldman Sachs or Lehman Brothers, Evercore Partners has won many major M&A deals. Last year, the company advised AT&T Inc. (NYSE: T) on its BellSouth acquisition, Credit Suisse Group (NYSE: CS) on its sale of a business unit to AXA (NYSE: AXA), General Motors Corp. (NYSE: GM) on its sale of a 51% interest in GMAC and CVS Caremark Corp. (NYSE: CVS) on its Caremark acquisition. Deals announced during the March quarter include U.K. engineering company Smiths Group PLC’s sale of its aerospace division to General Electric Co. (NYSE: GE), IronPort Systems sale to Cisco Systems Inc. (Nasdaq: CSCO), Novalis’ sale to Hindalco and Aquila Inc.'s (NYSE: ILA) sale to Great Plains Energy Inc. (NYSE: GXP) and Black Hills Power.

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