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Thomas Weisel presentation

<![CDATA[Thomas Weisel Partners chairman says the recovery is real. Cites the advice of Michael Boskin, Bush I’s chief economic advisor, who says that growth will be around 4 percent in 2004. Expects to see growth in the market continue. Inventories are starting to increase in expectation of demand. If the Fed hikes rates by two […]

<![CDATA[Thomas Weisel Partners chairman says the recovery is real. Cites the advice of Michael Boskin, Bush I’s chief economic advisor, who says that growth will be around 4 percent in 2004. Expects to see growth in the market continue.
Inventories are starting to increase in expectation of demand. If the Fed hikes rates by two to three percent, we would have a very severe correction. But I don’t think that will happen. Until the election, the Fed will keep rates low.
The other interesting issue is China. China is the only other source of innovation and value creation in the world economy. They are poised for an industrial revolution. He names a number of industrial companies, John Deere and Boeing, among them, that will benefit from supplying China.
The most interesting part of the market remains small-cap. The PEG ratio for these companies is 1.1 times next year’s earnings, compared to the S&P average of about 2.5 times forward earnings. So, the markets are not overpriced.
65 percent of the NASDAQ has no analyst coverage or coverage by only one analyst. The reawakening of coverage of these companies will drive interest and valuations. Weisel has increased research coverage by 29 percent compared with the larger banks, which have contracted coverage by as must as 40 percent. The whole next wave will be a dozen small research firms in the Bay Area that try to fill that void. Weisel says it is cheaper for his firm to build coverage than to acquire those firms — most of this activity, if you ask me, will be done with licensing/publishing deals, where research is purchased without the old ties between compensation and the trading volumes research drives.
The IPO market is still dormant. You have to go back to the 70s to find a period of such slow IPO activity. I believe you’ll see an explosion of IPOs in 2004. We did 50 in 2003 and I expect we’ll see 250 or 300 in 2004, but that is still below the late 90s.
PIPEs activity (private placements for public companies) peaked in 2000, but we’re almost back to that level now. Public companies have not had trouble finding money, but the deals have been favorable for the investors with the cash.
Weisel makes an interesting comment: The relationship between companies and analysts will now take months, not weeks, to develop. This indicates that there is still a role for coverage in the investment banking relationship, which is the source of a lot of the problems the market had in the past. It would be much more comforting to hear that it is not simply a matter of taking more time to establish the link, that the link has vanished. If an analyst is going to do their job, they should do it for the public market or for the company, but not for both.
Alex Vieux asks: What happens to the banks that laid off most of their Silicon Valley staff?
Weisel: Many of these banks have downgraded the involvement of analysts in the investment banking business or, like Solomon, moved analysts to the retail side. They need to play a role.
Sarbanes-Oxley is harmful, because it costs companies so much to comply that they can’t be public. The level of accounting and oversight is way over done. We’ve changed all our policies in anticipation of what the regulations will look like.
I don’t think the kinds of services investment banks provide for companies has changed a bit.
There is a lot of consolidation yet to come in the tech industry — 10,000 private companies and 3,500 public companies. The logjam is starting to break. You are going to get a very large amount of activity in the M&A business.
A couple pointers on M&A activity:
Audience aggregation–Direct marketing M&A is way up in 2003, as companies seek to build up large audience blocks. The same is happening in television, both as a result of relaxed ownership rules and the urgency to keep a critical mass of audience members on the marketing hook.
It’s happening in software, too.
Weisel says the new EU rules for mergers, which impose a nine-month cooling off period in a merger deal, will virtually kill M&A in Europe.]]>