- Qatalyst’s Boutros lands lofty prices for selling companies
- Tiff with HP exposes perception of firm’s hard-nosed tactics
George Boutros has heard the stories -- the ones rivals tell about how he’s cajoled, bullied and dissembled his way to the top of the cut-throat business of technology mergers and acquisitions.
So here’s a news flash: Boutros doesn’t care what the other guys think. “It’s sour grapes,” he says.
In Silicon Valley dealmaking, few have been as successful -- and controversial -- as Boutros and his long-time comrade, Frank Quattrone.
Over the past eight years, the duo has given their boutique advisory firm, Qatalyst Partners, the sharpest elbows in the Valley. Their specialty: pushing up prices for companies looking to sell, a strategy reminiscent of Quattrone’s days during the Nasdaq boom of the 1990s.
It’s no wonder then that competitors keep trying to pick the firm apart and discern its methods. One major Wall Street bank has gone as far as to disseminate a 10-page presentation laying out its ability to counteract Qatalyst, people with knowledge of the matter said. Others have urged corporate buyers to shun the firm altogether, said the people, who asked not to be identified because the information is private.
Some large technology companies make the decision to avoid Qatalyst themselves. Meg Whitman, the head of Hewlett Packard Enterprise Co., caused a stir in 2015 by refusing to negotiate with Quattrone and Boutros. In an e-mail later made public, an executive working on the deal said Whitman had described Boutros as “evil.”
Qatalyst has represented clients across the table from HP in the past, an external spokesman for Qatalyst said in a e-mailed statement, and expects to do so in the future.
Privately, rivals say Qatalyst’s aggressiveness and Boutros’s abrasiveness in negotiations can have adverse consequences. Indeed, acquisition premiums suggest the firm may be losing some of its edge. But publicly, few in the Valley will say a bad word about the firm. Who knows when you’ll end up on the other side of the table?
Boutros, 55, scoffs at the notion that anyone is going to figure out his playbook.
“The playbook is, we don’t have a playbook,” he says. “We have to understand what it is that motivates an acquirer to want an asset. Where is your leverage as a seller?”
Feints and threats go with the territory in M&A. But tales of Qatalyst’s stratagems are legion. Rivals stew over how Boutros and Quattrone wrestle buyers to the table and finagle lucrative deals. They complain Qatalyst plays bidders off each other, bluffs about prices and buyers’ interest, forces tight deadlines to stunt due diligence -- whatever it takes.
Other investment bankers do the same things, of course. It’s just that few seem as adept at it as Qatalyst.
“There are certain advantages to being mysterious and having that reputation,” said Bill Gurley, a general partner at venture capital firm Benchmark Capital, who worked with Qatalyst as an OpenTable Inc. board member on its $2.6 billion sale to Priceline Group Inc. in 2014. “Qatalyst’s reputation almost works as a self-fulfilling prophecy.”
Which is why some buyers balk when Boutros pushes too hard. Silver Lake Management walked away from buying Shutterfly Inc. in 2014 when Qatalyst asked the private equity firm to make a final bid before it had finished conducting due diligence, according to a person familiar with the matter. In a May 13, 2015 filing, Shutterfly called the sales process, which lasted about four months, “thorough and broad-reaching,” and said a deal never occurred because the company didn’t receive an offer that would have approached a meaningful premium to its trading price at the time.
Last month, Hellman & Friedman LLC negotiated directly with fellow private equity firm Permira Advisers, instead of involving Qatalyst, on its $900 million investment in Genesys Telecommunications Laboratories Inc., according to two people familiar with the transaction. Another person said Hellman’s choice was more about a long-standing relationship with Permira, rather than a wish to avoid Qatalyst.
“It is not uncommon for principals to negotiate directly with Qatalyst advising them in the background,” Boutros said. “Ultimately, Qatalyst will do what is best for the client and transaction.”
Representatives for the private equity firms declined to comment.
There’s an inherent conflict of interest for banks when they’re hired to sell companies. Advisers are supposed to push for the best price, but they’re only paid if deals are completed. Most bankers actually try to convince founders and chief executives to accept lower prices than they want, Gurley said.
“Qatalyst’s willingness to take an aggressive stance on price is so valued in the community,” said Gurley.
Qatalyst’s success speaks for itself: Along with Allen & Co., it landed the industry’s biggest deal so far this year, advising LinkedIn Corp. on its $26.2 billion sale to Microsoft Corp. in June.
So far this year, Qatalyst has generated about $220 million in fees, according to Freeman & Co., a research firm. That puts Qatalyst, which has about 60 employees, just behind Goldman Sachs Group Inc. and Morgan Stanley. It’s on course to finish 2016 at No. 3, same as last year.
There may be more deals to come before the year is out. Lyft Inc., the second-largest U.S. ride-sharing startup, is working with Qatalyst to find a buyer, a person familiar with the matter said in June, and Imperva Inc. confirmed this month it’s working with the firm to explore strategic options.
It’s been a remarkable run for Quattrone and Boutros, who’ve worked together for three decades. In the early 2000s, Quattrone’s career was derailed by a battle against obstruction of justice charges; he was exonerated on appeal. In 2008, he opened Qatalyst, and Boutros joined two years later. Quattrone referred requests for comment to Boutros, who speaks for the firm.
Today the San Francisco-based advisory, with Boutros as its chief executive and primary dealmaker, works almost exclusively for technology companies looking for buyers.
Since its beginnings, Qatalyst has cultivated its mystique by negotiating fat premiums. In 2009 and 2010, for instance, it scored an average premium of 80 percent on deals of more than $500 million, according to data compiled by Bloomberg, against an average for U.S. technology deals of 37 percent.
“Qatalyst’s performance in technology is ahead of what any other boutique has been able to achieve in any other sector,” said Jeffrey Nassof, vice president at New York-based Freeman & Co.
Lately, though, those premiums have begun to dwindle. In the past four years, they’ve hovered near 35 percent, compared with an industry average of about 29 percent.
Premiums aren’t the only measure of success, Boutros said. Since 2009, 27 tech companies have been sold at six-times revenue or more, he said. Qatalyst handled 14 of those sales.
“We’re in the business of maximizing price,” Boutros said. “Sometimes you’re better off selling off a very high stock price and getting a lower premium. Sometimes a company is overvalued or highly valued by the market and may not get a huge premium, but you may realize a record-setting multiple.”
One common Qatalyst tactic for fattening premiums is telling potential buyers they must hit minimum prices or face being eliminated in lightning-round auctions, people familiar with the firm said.
When OpenTable sold to Priceline, Gurley said he found out from a representative of the second-place bidder that it thought Boutros was bluffing. He wasn’t, Gurley said.
“Our job is to represent our clients’ best interests,” Boutros said. “We give them unbiased advice, but at the end of the day they make the decision. If they decide to pursue a transaction, our job is to help them achieve the best possible outcome.”
Yet maximizing prices for the sellers rarely endears a banker to the buyers, or to the buyers’ bankers. Qatalyst, for instance, advised the British software company Autonomy Corp. on its 2014 sale what was then Hewlett-Packard Co. The price: $10.3 billion.
That deal, engineered by then-chief of H-P Leo Apotheker, turned into a nightmare: HP later took an $8.8 billion writedown and accused Autonomy of misreporting hundreds of millions of dollars in revenue before the purchase. The blowup was one reason HP’s Whitman refused to negotiate with Qatalyst on Aruba, according to e-mails disclosed in June, following a request from the Wall Street Journal.
For now, at least, Qatalyst remains the boutique to beat. People who know Boutros say he’s mellowed over the years. Few think he’s about to go soft, however.
“The reason I keep doing this after 30 years is, every situation is different,” Boutros said.