Why Bankamerica Got Hitched In A Hurry

Rivals were snapping up investment boutiques, and Robertson Stephens was a good fit

On Sunday, June 8, most of the 66 partners from investment bank Robertson, Stephens & Co. streamed into San Francisco's tony St. Francis Yacht Club. With the Golden Gate Bridge in the distance, they had come to finalize BankAmerica Corp.'s $540 million purchase of the San Francisco-based firm. In one room, lawyers worked feverishly to wrap up employment agreements with Robertson partners and other key personnel. In another, cocktails flowed as the investment bankers and senior BankAmerica executives toasted their newly minted partnership.

By the time the salmon dinner was served, BankAmerica Chairman and Chief Executive Officer David A. Coulter had schmoozed his way through the crowd and had made some brief remarks about the opportunities that lie ahead. BankAmerica Chief Financial Officer Michael E. O'Neill made a broad presentation about BankAmerica. And Robertson Stephens Chairman Sanford R. Robertson raised a celebratory glass of wine with jubilant colleagues. "I really think these are two groups of people who have a very good chance of working together," explains Coulter today. "When you look at BankAmerica's ability to take this franchise and really lever it up, I see tremendous upside." Adds Robertson: "We speak the same dialect and the same language."

FRENZY. What brought the two sides together may have been the fear of being left behind by the frenzy of bank-brokerage marriages. In April, Bankers Trust New York Corp. had acquired Alex. Brown Inc., while SBC Warburg Inc. announced plans in May to buy Dillon, Read & Co. Those deals followed the megamerger earlier this year between Morgan Stanley & Co. and Dean Witter, Discover & Co. Industry experts say the spate of mergers was putting pressure on many financial institutions to beef up their capital and product offerings. Says Michael Flanagan, a securities analyst with Financial Service Analytics Inc.: "Firms remaining independent will be faced with strategic decisions on how to compete effectively with this new breed of investment house."

That sentiment was not lost on BankAmerica and Robertson Stephens--both based in the same downtown San Francisco building. "I've probably had a breakfast, lunch, or dinner with the head or co-head of every major investment banking firm," says Coulter. Among those the nation's third-largest bank seriously considered acquiring, say sources, was Donaldson, Lufkin & Jenrette Inc. Coulter and DLJ declined comment.

Robertson Stephens, an investment banking boutique that specializes in taking young high-tech companies public, received a number of overtures from potential suitors. A source close to the bank says the firm spoke face-to-face with officials from Germany's Dresdner Bank and from NationsBank Corp. about a merger. Robertson Stephens CEO Michael G. McCaffery confirms only that the bank received "multiple calls and inquiries" from interested parties.

BankAmerica and Robertson Stephens had been talking for months, but negotiations got serious only six weeks ago. The agreement in principal took only three days to craft.

The ties between BankAmerica and Robertson Stephens began more than five years ago with Coulter's and Robertson's friendship. Both art lovers, the two routinely dine together, with their wives. They became business partners when Robertson Stephens obtained a $20 million line of credit from BankAmerica about two years ago. The lending relationship, which had recently grown to $40 million, let key executives get to know each other personally and professionally. McCaffery, for instance, became friendly with BankAmerica's O'Neill. The personal links, says the 66-year-old Robertson, who stands to make at least $50 million from the transaction, helped both sides feel more comfortable with one another. "It accelerated the due diligence side," explains Robertson.

BLUE-CHIP CLIENTS. Although nothing formal was discussed, the executives began considering how the two companies might broaden their business relationship about a year ago. Talks didn't get serious, however, until the Alex. Brown-Bankers Trust deal. Recalls McCaffery: "That transaction caused people to focus their thought processes." In a series of meetings, top executives pored over the others' client lists and products. "The purpose of these meetings was not to discuss a transaction," says McCaffery. "It was really to establish if there were strategic merits to combining the businesses."

McCaffery and BankAmerica officials say the logic of the deal quickly became apparent. Robertson Stephens would benefit from BankAmerica's muscle and capital as well as access to its blue-chip clients. BankAmerica would gain a foothold in the lucrative equity underwriting business. Plus, it would get Robertson Stephens' flourishing $4 billion asset-management business. The combined entities, says Coulter, would offer customers a broader array of products and services. "I see more and more firms wanting a one-stop discussion," says Coulter. "You have to have the ability to do equity deals."

Convinced that a deal made sense, the banks began hammering one out on May 27. Among the critical issues: retaining senior executives. BankAmerica agreed to pay Robertson partners $245 million in cash up front. Some $225 million will be paid to partners over three years, while $70 million goes to key employees below the partnership level over a four-year period. The whole deal is a record-setting five times book value. "We want to incent everyone to give this linkup a good strong period of gestation," says O'Neill.

It didn't take much to persuade the Robertson partnership to go for the package. All 25 key partners who were asked to sign employment contracts before the deal could be finalized did so. On June 6, Robertson Stephens management unanimously approved the proposed transaction. BankAmerica's executive committee followed.

Both sides insist no layoffs will result. Indeed, McCaffery says the investment bank will add research staff to its already sizable health-care, consumer products, and technology groups. It will also expand research coverage into areas such as real estate and media and entertainment to take advantage of BankAmerica's client strength.

Some skeptics question whether BankAmerica's more conservative culture will mesh well with Robertson Stephens's entrepreneurial style. They point to the bank's failed acquisition of discount broker Charles Schwab Corp. in 1983. BankAmerica was forced to sell the brokerage back to founder Charles R. Schwab in 1987 following financial and cultural difficulties. Still, many believe that BankAmerica knows what it's doing this time--particularly since it has said it will allow Robertson Stephens to operate fairly independently. "I think Dave Coulter is going to make this work," says Charles Schwab.

With the signing of the deal, all eyes now turn to San Francisco's other investment banks. Montgomery Securities, which has stated that up to 20% of its firm is for sale, does not rule out an alliance. Says Jerome S. Markowitz, senior managing director: "I suspect [the BankAmerica deal] will not be the last thing we see." But Hambrecht & Quist CEO Daniel H. Case III insists his high-tech specialty firm has no intention of following the pack: "We think it's in the best interest of our customers to stay focused and nimble. I don't see why we should trade that for an automated teller machine card and a toaster."

ATMs and toasters, though, are only a small part of what the folks at Robertson Stephens are banking on.

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