INDIVIDUAL CASE ANALYSIS-THOMAS WEISEL PARTNERS 1
Individual case analysis-Thomas Weisel partners
Asa Montgomery Securities partner in mid-1991, would you argue for oragainst selling the firm to NationsBank. Why?
As a Montgomery Securities partner in the mid-1991, I would argue orthe sale of the firm to NationsBank. This would be based on thefinancial performance of the company during this time, and the futurethat looked quite bright for the investors after the sale. In the1990’s, Montgomery was at its peak, achieving great prosperity inits industry. It was considered a giant amongst other competitorsduring its time. According to its financial records, the company’srevenue increased more than five times in seven years.
In 1990, the company’s revenue was $94, and by $705 million(Weisel & Brandt, 2002). The main reason for its success duringthis period was business partnerships with other equally fast growingcompanies. It was such partnerships that led made the company on theglobal financial books. In 1997, there was an announcement made byNationsBank Corporation of Charlotte, N.C, saying that they wereacquiring Montgomery for around $1.3 billion. According to theexecutives, they believed that they were making a move that wouldhelp them create one of the United States top full-service investmentbanks. This deal would be valued at about 15 times the firm’searnings and 12 times its book value.
Iwould also support the sale based on the ideas that the involvedexecutives had the deal. According to the NationsBank, they wanted toincrease the capital and realize their growth potential, and thatthey needed to expand to the debt area. This was a move to remainrelevant in the industry’s competition, and not to lose theirclients. The executives also saw a good opportunity to develop theirsolid private equity practice, which however, would take a lot ofmoney. These visions are the reason why I would support the sale ofthe company to the NationsBank. 1991 was a perfect time for the firmto grow, and the sale opportunity helped them to grow their capitaland expand.
Additionally,Weisel had a positive feeling about the future of MontgomerySecurities. He had a feeling that selling the company to NationsBankwould help them to raise more capital to increase its geographicalcoverage across the United States. He was on record saying thatbanking, research and advisory capabilities would help the firm to bea major competitor in the industry. Given that the previous successof the company is attributed to his vision for growth, I woulddefinitely back his ideals.
WhyNationsBank-Montgomery Securities partnership imploded and lessonslearned
According to Schuker & Jackson (2001), firms are increasinglyusing mergers and acquisitions as a move to strengthen and maintaintheir positions in the market. Just as all other firms, Montgomeryconsidered this as a relatively faster and efficient way to expandinto new markets and to pursue success. However, Montgomery andNationsBank failure short of their goals and objectives, mostly dueto financial and market failures, and due to with neglected humanresource issues and activities, most of the investors walked outafter rows with Montgomery’s management and culture clash with thecommercial bankers at the headquarters. With reference toMontgomery’s case, Schuler & Jackson (2001) say that the lossof key talent was a significant reason for the implosion.
One of the greatest imperative lessons learnt from the failure of themerger is that margins are important. This was one of the problemsthat Montgomery Securities faced after the merger. The company cameto realize that Margins are a key metric when investing in retail.According to Weisel & Brandt (2002), a company is supposed toclosely watch its margins and compare them with their majorcompetitors. Additionally, the implosion of the merger teachesbusiness people that they are supposed to closely monitor the cashconversion cycle for a given company, and be able to compare itagainst the major competitors. This is a general move for watchingthe business’ performance. Given the dynamic nature of theindustry, time is of the essence, and a business has to adjust intime to the industry’s trends. Moreover, this is a general lessonthat change is constant, and companies have to be alert at all times.Finally, the implosion taught peers a valuable lesson that theyshould be wary of companies that expand too fast. Some of the growth,for instance, increased capital, may lead to loss of operatingequilibrium, and end up bringing down a company.
Evaluatethe TWP business plan. Under what conditions can a niche strategysucceed?
The new business plan for Thomas Weisel Partners was drawn andlaunched in 1999. The company heavily focused on technology, whichprospered after the peak of the z generation around that period. Thecompany’s business plan was strengthened by diversification intohealthcare and consumer products. It also increased its capital bybeing listed on the NASDAQ (Weisel & Brandt, 2002). TWP offeredinvestment banking, brokerage, and equity research and assetmanagement. The company’s target market was the United States ofAmerica (Bloomberg, 2015). The investment banking services includedcorporate finance services and advice. It also provided solutions,both at private and public levels, on equity and debt securities.This covered convertible debt and investment in pubic equity. Thecompany also provided asset management covering private investors andpublic investors. As for public investment, it offered products suchas distribution management and venture capital funds.
While selecting a niche market, a company has to consider some keyelements, on which it can build its success pillars upon. Firstly,the target customers have to be identified. Verbeke (2013) says thatsegmenting the overall market helps one to target what they offer.Secondly, the company has to set clear goals and objectives. Thesehelp it to identify what they hope to achieve by following the nichemarket approach. If need be, there has to be research into the newcustomer segment and form secure premium prices. Finally, themanagement has to answer the question as to whether the niche marketmatches with their resources and capabilities. In the case of TWP,they had to consider their capital and capabilities, especially basedon the detail that they had just arose from an economic meltdown.Generally, Verbeke (2003) gives three rules for success in the nichemarkets. First, a company has to meet the target customers’ uniqueneeds. Secondly, service delivery has to be creative and efficient.Finally, the business has to be able to respond to the targetmarket’s dynamic needs.
Advice for TWP as they proceed into 200 and beyond
Going into 2000 and beyond, TWP has to achieve success simply byavoiding failure characterized by poor performance in revenue andprofitability. According to Verbeke (2013), and organization increaseits profitability chances when it has a clear growth strategy astrong execution of infrastructure. Based on a review of thecompetitors, growth is elusive because companies do not adequatelyconsider opportunities within their core business and some lackenough infrastructure to support successful execution of theirbusiness plan.
Accordingly,I would advise TWP to integrate strategy with executioninfrastructure. The first move by the company is to strengthen theexecution infrastructure by investing what Weisel & Brandt (2002)term as “safe bets”. Regardless of the firm’s selected strategyfor growth, its infrastructure has to be of high standards so as tosupport successful business plan execution. Secondly, the firm has toinitiate a process of identifying strategies with the highestprobability of success within their niche market. The new millenniumcomes with challenges, such as the increased competition from rivals,and the company has to be able to counter this. Given that the firm’sbusiness plan is to develop within a certain niche market, itsexecution hast to be customer focused. Therefore, as the first movefor success, the company has to initiate the process of identifyingprofitable growth opportunities by defining its products, services,customers and channels. This is a general task for the executiveswhilst defining the firm’s “core business”. Such assessmenttherefore helps the firm to answer some questions such as thedirection the key indicators are headed and why, threats within theniche market and opportunities to build upon.
Bloomberg. (2015). Bloomberg Business. Retrieved on 18 April2015 from:http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=664384
Schuler, R. & Jackson, S. (2001). HR issues and activities inmergers and acquisitions. European Management Journal, 19(3)pp: 239-253.
Verbeke, A. (2013). Internationalbusiness strategy: Rethinking the foundations of global corporatesuccess.
Weisel, T., & Brandt, R. C.(2002). Capitalinstinct: How one man outsmarted Bank of America and changed theinvestment business. NewYork: Wiley.