Wit Capital Group (Nasdaq: WITC) jumped 28 percent Monday, after the company said it will buy SoundView Technology Group for about $320 million in stock. The move bolsters Wit's Internet and technology investment banking.
Shares in Wit Capital were up 5 to 22 9/16, still below their high of 38. The stock gained credibility as it participated in some of the summer's hot IPOs, just after its own initial public offering in June.
The move will "level the playing field for all investors" said Wit Capital Co- CEO Ron Readmond in a conference call. The research of SoundView's 30 analysts, previously available only to institutional clients, will now be available over the Internet for free, in keeping with Wit Capital's practice of providing research to individual investors. Wit Capital will acquire 450 institutional clients from SoundView.
The move puts Wit in a better position for IPO underwriting. Wit competes with E*Trades's (Nasdaq: EGRP) E*Offering and traditional firms such as Donaldson, Lufkin & Jenrette, which distributes IPO shares via DLJ Direct (NYSE: DIR).
The acquisition expands Wit's product and research offerings, increases its distribution abilities, and gives it one of the largest banking and research groups focused on Internet/technology companies Individual investors will have access to a wider range of technology sectors, more shares, and research on 190 more technology companies. SoundView also complements Wit Capital's strengths by adding expertise in technology sectors such as software, telecom, datacom and infrastructure.
Wit Capital also intends to leverage the equity in the SoundView name, said Russ Crabs, CEO and President of SoundView. The companies will remain as separate entities for now.
The companies had combined nine-month revenue totaling over $125 million and have separately lead or co-managed over 75 deals year to date, according to a company release. Wit Capital also said Monday its nine month 1999 revenues will increase significantly from $27 million to $127 million on a combined basis. The company recently beatestimates in its third quarter.
"We expect the synergies to be felt in market share," said Mark Loehr, head of investment banking for Wit Capital.
"The combination of revenue from both entities will accelerate the time to the combined entities' profitability," Loehr said, though he declined to speculate how much time it might take. Though money-losing Wit Capital is acquiring a profitable company that had $100 million in revenue for the past 3 quarters, Loehr said the entity won't yet achieve profitability because its "first prority is to build a world-class franchise."
Under the deal, based on Wit Capital's closing price of $17.56 on Friday, Wit Capital will acquire all the fully diluted shares of SoundView in exchange for about $320 million of its shares and options. The exchange ratio is subject to adjustment for changes in Wit Capital's trading price from $17.56 up to $18.56 or down to $15.56, but not beyond these levels.
Crabs, President and CEO of SoundView, will join Wit Capital's Board of Director's and Curt Snyder, Chief Operating Officer of SoundView, will become Chief Financial Officer of the new entity. Goldman Sachs, which owned 20 percent of Wit Capital prior to the transaction, managed the deal.