New York, NY – A few weeks ago, New York City based financial services firm, Cowen Group, said it signed a definitive agreement to acquire Dahlman Rose & Co., a research-driven investment bank focused on global supply chain industries. Commercial terms were not disclosed for this all-stock transaction.
Rationale for the Deal
The deal, which is expected to close at the end of the first quarter of 2013, is extremely complementary as the two boutique investment banks firms focus their research and banking businesses on different sectors. Cowen’s core sectors are health care, technology, media, telecommunications, consumer, aerospace and defense/industrials and REITs, whereas Dahlman Rose’s expertise lies in energy, transportation, metals, mining, chemicals and agriculture.
Jeffrey M. Solomon, Chief Executive Officer of Cowen and Company, explained the deal, saying “This transformational transaction will expand our client reach and accelerate our strategy to grow intelligently and productively by adding depth and breadth to our research, sales and trading, and investment banking teams, without compromising the quality of our product. We remain extremely committed to developing high quality services that are focused on making a positive impact for clients first and foremost.”
The transaction was approved by the boards of both companies and is subject to customary closing conditions and regulatory approval.
Consolidation Trend Continues
Cowen’s acquisition of Dahlman Rose is not surprising as a number of broker-dealers or investment banks have either merged or shut down completely over the past eighteen months. This is a result of increased regulations, a sharp reduction in equity commission volumes, and as the buy-side has reduced what they pay for external research over the past few years.
A few of these mergers or closings include B Riley’s recent acquisition of Caris & Company, or Stifel Nicholas’ acquisition of KBW. In addition, Collins Stewart Hawkpoint was absorbed by Canaccord, while in the UK Evolution Securities was bought by Investec. Other noteworthy closures include ThinkEquity LLC, Rodman & Renshaw, Ticonderoga Securities, WJB Capital, Kaufman Brothers and CapStone Investments which all shuttered their businesses in the past few years.
It looks like Cowen’s all stock purchase of Dahlman Rose should be a win-win for all involved, including clients, investors, and staff. However, we expect a number of boutique broker-dealers, investment banks, and independent research firms will not be so lucky as they won’t be able to find a “white knight” to save them from having to close their operations.
On the flip side, we suspect that some firms will see the current market environment as an opportunity to acquire interesting businesses or assets which fit their strategy, product set, or customer base. The real question is who will be the lucky ones?