A Race to Serve Midsize Firms in Capital Markets
Ben-Amos, Omri, American Banker
Banks are rolling out the red carpet to welcome midsize companies to a club that until recently was restricted to the biggest corporations: the capital markets.
First Union Corp. enlarged its capital markets group by 20% to 1,800 in 1996 and will add another 11% this year to work with more midsize companies. SunTrust Banks Inc. also increased its group by 46%, to 142 bankers in 1996. And Wachovia Corp. is projecting 50% growth in 1997 revenue from deals for middle-market companies.
Several others, including NationsBank Corp. and Bank of Boston Corp., are also dedicating significant resources to providing such products as revenue bonds, private placements, and common stock to the middle markets -a broad category that takes in companies whose annual sales range from $10 million to $2 billion.
"It's probably going to be the largest growth segment in the investment banking and capital markets areas over the next three to five years," said John Giannuzzi, a managing director and head of Bank of Boston's capital markets division. "It's going to drive the future of this marketplace."
Bankers say they already have strong ties to middle-market companies, which have traditionally relied upon them for loans to fuel their growth. But they acknowledge that it is a challenge to hang on to these customers as their businesses and needs grow.
"Our customers are leading us that way," said Michael F. Ryan, managing director of Wachovia's commercial banking division.
Banks' euphoria about the sector, however, is tempered by numerous challenges: strong competition, investor reluctance, and relatively high per- deal costs, to name a few.
Still, more than 96% of the record-breaking 10,000 mergers and acquisitions through the first 50 weeks of 1996 were in the middle market, according to Securities Data Co.
These acquisitions require financing, and bankers said that the traditional loan product is now one of many options for middle-market companies. "When we look to future opportunities, we think that there will be more for us in the middle market than in the Fortune 500," said Charles Shufeldt, president of SunTrust Capital Markets.
Indeed, a recent study suggested that executives at middle-market companies are becoming increasingly aware of the ability to tap the capital markets.
One percent of companies with $10 million to $100 million of annual sales will probably enter the capital markets for the first time in 1997, according to a study by Payment Systems Inc., Tampa, Fla.
While the percentage isn't large, that amounts to approximately 1,680 new participants in the capital markets.
The move largely reflects acquisition and facility-expansion plans among these companies, said Maria Erickson, director of corporate research at Payment Systems. …