The dealscape according to Stone Key Partners
Two Wall Street veterans, former Bear Stearns investment bankers Denis Bovin and Michael Urfirer, officially launched Stone Key Partners today. The boutique investment banking firm, which has been operating under the radar for nearly a year, will focus on strategic advisory services, including M&A advice.
Stone Key, which has about a dozen people in all right now, plans to focus on technology, aerospace, defense, homeland security and information services. The firm made it to Thomson Reuters’ annual rankings for 2008 for advising on about $5.5 billion in M&A transactions. Bovin and Urfirer, who have worked together since 1994, have been involved in big deals such as Finmeccanica’s $5.2 billion acquisition of DRS Technologies, among others.
Bovin, 61, and Urfirer, 49, are co-chairmen and co-CEOs of Stone Key. Dealzone caught up with the two of them for a Q&A:
DZ: You’ve been operating under the radar for almost a year now. Why the announcement now?
Bovin: We decided both for choice and chance that we would wait to make an announcement. The choice was that we really wanted to have a significant funding source behind us and we wanted to have some deals done. The chance was, it took a lot longer to actually set this up. If you want to set up a boutique that’s going to last for a week-and-a-half, it’s real easy. If you want to set one up that you think you can build into something major, it takes a lot longer. So that chance took us longer than we expected but we did close on our financing and we’ve announced five-and-a-half to six dollars worth of deals, so we thought this was the right timing.
DZ: What was your first year of operations like? It’s an interesting time to launch an advisory firm, what with deal volumes being where they are.
Urfirer: That’s absolutely right. Clearly we’ve all see deal volumes are down. But that being said, we have been fortunate to have been pretty busy. Just taking care of our existing clients has been a full-time job… the sectors that we focus on — technology crossing the government and commercial space — both of these sectors for a variety of reasons are very active and we think is going to get only more active in terms of M&A. You’ve got things like the recent articles about Cisco and HP starting to cross over further into each other’s turf, there’s the IBM-Sun thing percolating that is going to have ripple effects throughout the technology industry. For the most part, large technology companies are well-capitalized, have cash or still have access to capital.
DZ: Will you be focusing on any type or size of deals?
Urfirer: In general we’re not positioning ourselves as an exclusive sale shop or divestiture house or what-have-you. We’re going to stay where we’ve always been — at the high-end with the larger cap, doing the more sophisticated kind of deal.
Bovin: In today’s world in particular, an M&A transaction is really the tip of the spear. There’s usually a huge amount of work and advice that precedes that and what we’re finding is a lot of people calling us up and saying, “we’re in uncharted waters, we need your advice to help us think through where we want to go and how we want to go there.” In particular we’ve gotten a lot of calls from boards of directors saying, “could you come in and help us think about the future and what we should keep and what we should get rid of.” So while the actual deal announcements have been lower, it’s a lot like a duck paddling on water — pretty calm above but there’s a lot of paddling going on below.
DZ: When might some of these conversations turn into deal activity?
Bovin: We expect ’09 will be an extremely active year with a lot of very important transactions that we’ll hopefully have more than our fair share of. I think Mike and I base that on what our backlog is right now.
Urfirer: It’s clearly weighted to the second half (of the year), and depending on how the whole financial rescue plays out, the timing can obviously change very quickly. It could accelerate or push things out to 2010. But given the overall economic environment, there are a bunch of these situations where companies are going to have to acquire or combine to either to get into a leadership positon or maintain it.
DZ: So what’s your pitch to clients, given what’s happening with the bulge-bracket firms?
Bovin: We rarely sell against our competition. It’s not our style to say they’re not doing a good job. We tend to sell by saying, “Mr CEO or Mr Director, we know more about your business than almost anyone and we have supportable, analyzed, defensible views of what might happen in your industry to you and your competitors over the next several years that you need to think about.” Our pitch is to typically go in and say “here’s what we think your competitors are going to do, and if they do A, B or C, here are the options that are open to you.” So we help our clients deal with a dynamic competitive environment, and to be able to do that you have to have very deep domain knowledge and years of experience. Luckily, we do.
DZ: Are you recruiting right now?
Bovin: We are actively hiring, and we’re particularly hiring at the very, very senior level and the very junior level. There are some very unusual people available in both those buckets that we’re looking in… the bumper sticker is, we’re looking for people who share our passion for excellence.
Urfirer: This environment is a real plus because it gives us the opportunity to attract super high-quality people. We’re not in the race to hire a thousand people and prepare the firm for an IPO when there’s a market out there again.
(Photo 1: Michael Urfirer, courtesy PR representative. Photo 2: Reuters)