The acquisition was described today as filling gaps for each company: Prudential wanted access to more tech deals and Volpe needed more resources to meet the growing needs of tech companies.
Prudential began discussions with Volpe last summer after realizing that it would be difficult to build a substantial tech operation from the ground up, said Hardwick Simmons, chief executive of Prudential Securities.
Simmons added that although Volpe has served as lead banker on only three initial public offerings this year, the number of IPOs in which it served as co-underwriter was attractive to Prudential.
Thomas Volpe, CEO and founder of Volpe, said his firm was looking to pair with a larger firm as the market for technology deals soared.
"We found the breadth of products that companies need has increased tremendously," Volpe said. "With Prudential, we'll have broader and deeper industry sectors than in the past and be able to do it faster."
The deal marks the latest in a string of pairing between smaller investment houses and large finance companies.
Over the past two years, firms such as Robertson Stephens, Montgomery Securities, Alex Brown and Hambrecht & Quist have been acquired by banking powerhouses. The reason: From initial public offerings to mergers and acquisitions, tech companies represent a very active and growing market for bankers.
Technology related IPOs led the market in both the number of deals completed and the amount of capital raised, said Richard Peterson, an analyst with Thomson Financial Securities Data. This year's 36 technology IPOs have raised $36 billion.
While not one of the largest players in the market, Volpe has served as lead underwriter in three technology deals this year, ranking 26th out of 90 investment banks, Peterson said. The firm also has co-managed 41 offerings.
Under today's agreement, Volpe will become the Prudential Volpe Technology Group. Financial details were not disclosed. In the case of NationsBank acquiring Montgomery two years ago, the banking giant paid $1.2 billion.
"Everyone is trying to partner with a technology firm," Peterson said. "Look at the Chase and Hambrecht & Quist deal. Prudential and these other banks realize technology underwriting is critical for the next century."
Chase Manhattan, the second largest bank in the nation, is merging with Hambrecht & Quist in a $1.35 billion deal.
Although dozens of boutique banks dot the landscape, most only conduct a handful of IPOs overall, Peterson said. One of the few remaining independent firms that has handled several technology IPOs as a co-underwriter is Gerard Klauer Mattison, Peterson added.
"Gerard could be a candidate for the next acquisition," Peterson said.
Acquisitions of boutique banks have been part of the overall consolidation of the banking industry. The Montgomery-NationsBank deal, for example, was later part of the huge NationsBank-Bank of America merger that closed last year. The investment bank is now called Banc of America Securities.
The large banks still lead the way in serving as the lead manager in technology-related IPOs. Credit Suisse First Boston tops the chart with 47 such IPOs this year, followed by Goldman Sachs and Dean Witter Morgan Stanley, which have each racked up 38 deals.