What would Frank do? Quattrone sheds light on the art of M&A

November 18, 2010

Frank Quattrone, the mustachioed dealmaker that helped generate multi-billion bidding wars for clients 3Par and DataDomain, says the technology industry is ripe for more acquisitions. Quattrone

The reason is simple: a top tier of tech companies have loads of cash in their coffers and many of those companies are interested in buying a much broader range of companies than in the past, Quattrone explained during a rare public speaking engagement at the Web 2.0 conference in San Francisco on Wednesday.

“Instead of having one or two buyers within each sector, now if you’re a networking company you might be bought not just by Cisco, but by Oracle, by IBM, by Dell, by HP, now there are five or six big companies that want to buy almost no matter what you are,” he said.

Quattrone, who faced charges of interfering with an investigation into IPO kickbacks during the dotcom boom days (the first trial ended in deadlock, the second trial’s conviction was thrown out on appeal, and a third trial was avoided when he reached a deferred prosecution deal), has led the technology world’s most remarkable second-act since Steve Jobs returned to Apple.

Quattrone told the audience on Wednesday that he went through a period of “soul searching” before starting his new firm, Qatalyst Partners, in 2008, during which he considered getting into everything from private equity to clean tech.

And he offered a peek into the dealmaking savvy that has made his Qatalyst one of the top names in the technology M&A world.

“I think companies need to keep in mind where they are in the musical chairs game of an industry. Because the best, most spectacular sales happen when there’s six buyers and one or two sellers. And knowing where you are — you might not necessarily want to be the first, but you sure don’t’ want to end up without a chair,” he said.

“We have a network of contacts, where there are very few boards where we can’t reach out to the CEO or key board members,” he said.

One example he cited was 3Par:

“They were in OEM discussions with the three buyers that ultimately considered whether or not to buy them. And each of them said ‘Hey if you ever get a call that someone wants to buy you, we want to know about it.’ So generating that knowledge and education early, before there’s a transaction there, and knowing what the processes are, is helpful,” he explained.

Quattrone, who led some of the biggest tech IPOs of the 1990s, including Amazon.com, also opined on the problems with the way initial public offerings are handled by his fellow bankers.

“I’ve been saying for a while that we need to re-invent the IPO for current market conditions,” he said.

“You need to concentrate the economics. I think there’s rare occasions where you need more than a single bookrunner, and more than a half-a-dozen firms that are participating in the deal at all.”

“The company should gain control over the allocations. These are your shareholders, and you shouldn’t allow the bankers to day ‘Hey this is our black box, we’ll tell you who the investors are.’”

And he seemed unimpressed with the current state of equity research at Wall Street firms:

“With few exceptions, I’d say Mary Meeker being the most visible one, there’s been an exodus of talent from the sell-side of Wall Street, because of regulatory considerations that make it impossible for analysts to really participate on investment banking profits.”

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