By Brandon Roberts
Special To BioWorld Today
Analysts say Prudential Securities' acquisition of Vector Securities, a leading full-service healthcare investment bank, is the latest development in the consolidation of banks - a growing phenomenon that impels them to seek focused expertise.
Investment banks committed to the promise of the life sciences and the healthcare industry as a whole are strengthening their healthcare groups' intellectual capital.
The deal closed June 30.
"Many firms abandoned healthcare in favor of the Internet," said Theodore Berghost, founder and CEO of Deerfield, Ill.-based Vector, although "healthcare accounts for upwards of 20 percent of the Gross Domestic Product" and "continues to be a very important segment."
Although maturing, biotechnology is "just getting started," with "a lot of technology yet to come" and significant advances in the next decade. Although biotechnology "headed south" in 1996, and languished in the following two years, Berghost predicted people will come back to the life sciences.
Other banks than New York based Prudential have made large efforts to retool their healthcare coverage. SBC Warburg Dillon Reed Inc., of New York, hired away all of New York-based Saloman Smith Barney's healthcare group, but the merger of Vector into Prudential creates the largest and most complete effort to date.
With "30-plus bankers" and "30-plus analysts" focused solely on healthcare and the life sciences added to Vector's sales force, the pair will have "the largest team focused on healthcare on Wall Street," said Vector senior biotechnology analyst Peter Drake.
Berghost said there is a "sorting-out process going on right now, and we are in a very strong position" with the competing investment banks. Drake and Berghost cite, as major drivers for the deal, Prudential's distribution channels and access to more capital.
"Financial-services corporations are forced to offer a broader array of products," he said. "As a smaller firm, it is more difficult to do assignments."
About half of Vector's revenue base derives from mergers and acquisitions, and the strategic advisory work to be done at the merged firm is "perceived-value added," having a "capital base [such as that of] Prudential, which is between $1.7 billion and $1.8 billion. It gives more clout to what we say," Berghost said.
He said Prudential "has one of the most successful offshore distribution capabilities," which will strongly enhance its capital markets efforts previously focused on the equity side.
Paul Scura, executive vice president and head of Prudential's investment-banking group, said Prudential intends to leverage "the boutique knowledge base of Vector."
Lately, Prudential's 6,500 financial consultants are noting a lot of retail interest in biotech, Scura said, along with a general trend toward easier market access for the industry.
Both firms hope the deal will draw more funding from institutions. Berghost said such interest has been strong on a highly selective basis, and is growing.
"Prudential is known historically as a strong retail firm," and "is not trying to be all things to everybody," but "with regard to eight industry segments, [wants] to be a player."