Morgan Stanley’s Debut Bow To Mid-Market

Morgan Stanley wants the mid-market community to know it is showing them some love.

The New York investment bank staged a conference this month for about 120 people, its first mid-cap sponsor meeting, said Mark Bradley, Morgan Stanley’s global head of financial sponsors coverage. James Gorman, the firm’s CEO, headlined the event, which also drew in top executives in M&A, leveraged finance and capital markets debt and equity.

“We have a renewed effort to focus a significant amount of additional resources on covering middle-market sponsors,” Bradley said. “We’ve always covered middle-market sponsors. This is just an increased focus on an existing strategy.”

Some members of the community, viewing Morgan Stanley more as an adviser to mega-firms, did seem surprised. “Morgan Stanley is far more active (and interested) in the midcap space than I realized,” wrote Rich Lawson, a co-founder and managing director of Huntsman Gay Global Capital, a $1.1 billion buyout fund in Palo Alto, Calif., who was live-tweeting the meeting.

Bradley said part of the point was to have a kind of coming out party for Joe Purcell, a former JPMorgan executive who joined Morgan Stanley last March to head up the mid-market financial sponsors team. Morgan Stanley wants to target buyout shops from mid-market to mega-firms, Bradley said. Companies with enterprise value of $300 million to $500 million represent the lower end of the firm’s range. Morgan Stanley offers financing, equity or M&A, and it has a fund of funds so its clients can invest with sponsors, Morgan Stanley Private Markets Fund IV LP, $1.14 billion pool that had its final close in 2009

Morgan Stanley also closed a mezzanine fund, its first, in January. Morgan Stanley Credit Partners LP raised $956 million in capital commitments for leveraged buyouts, debt refinancings, acquisitions and recapitalizations of mid-market companies in North America and Western Europe.

The firm is well positioned to serve middle-market sponsors, because of its strength in initial public offerings, where it led the league tables last year, Bradley said, citing the recent IPO of Nielsen Holdings, taken private in 2006 by sponsors Carlyle Group, Blackstone Group, Kohlberg Kravis Roberts & Co., Thomas H. Lee Partners, AlpInvest Partners and Hellman & Friedman.

“These things tend to move in big, broad cycles, and right now the buyside wants to buy sponsor deals, so they are performing well,” he said. “As long as these markets remain robust, I expect it to be a very good year for exits.”