Private Equity Bloodletting May Have Just Begun

Pink slips are flying once again at some of the industry’s biggest financial guns. At least two firms – GE Capital and Credit Suisse First Boston – have confirmed that they have laid off staff. Additionally, Thomas Weisel Partners is rumored to be getting ready to wield the ax.

Faced with uncertainty and a sharp decline in its underwriting and M&A business, San Francisco-based investment bank Thomas Weisel Partners recently cut 40 jobs. The investment banking division was hit the hardest, said Amanda Duckworth, a spokeswoman with the firm.

While the cutbacks have not yet sliced into Weisel’s private equity arm, headhunters report a flood of resumes leaking from the firm. Moreover, one headhunter who places private equity players said that his firm has received an unusually large number of Weisel private equity resumes.

“We usually get resumes before an actual announcement, so it is quite possible that this is the case with regard to the Weisel resumes we have been getting from their private equity group,” the headhunter said.

However, one former staffer denies any feelings of insecurity among the venture group. And Duckworth insists that the group is healthy and robust.

“It’s a strong and viable part of the business,” she said. “It’s a good time to be in private equity.”

After ballooning to 840 employees, Weisel made its first round of layoffs in August, cutting 80 from its roster. Now its headcount is at 700. Twenty additional employees were lost through attrition.

Additionally, Thomas Weisel Partners’ co-founder Sandy Miller left the firm about a month ago. At year-end, he resigned from his duties as a member of the executive committee, chief administrative and strategic officer and co-director of investment banking to take on a special limited partner role.

The chief administrative role was filled by Shaugn Stanley, while Blake Jorgensen replaced Miller as chief operating and strategic officer.

Miller, meanwhile, joined 3i Group PLC’s Palo Alto, Calif., offices in September as a managing director to oversee the U.K.-based firm’s later-stage technology investments in the U.S. He retains an ownership stake in Thomas Weisel, but gave up all operating roles once he became a special limited partner there.

The leap across the Atlantic for 3i, at the height of the Internet boom in 1999, has become bittersweet for the firm. Recently, it closed seven of its offices in UK and Europe, and issued walking papers to 185 employees, approximately 17% of its workforce.

Still, Miller says the European layoffs will not affect 3i’s burgeoning U.S. practice. Currently, it has 35 staff members split between its Palo Alto and Waltham offices.

“There’s no changes planned to staff, capital commitments, staffing, deal flow or strategy,” he said. “The U.S. will be a major growth area for 3i globally. It’s already the leading VC firm in Europe, it needs to have a U.S. operation.”

Proving that its U.S. business is indeed viable, the VC firm has already invested $350 million in 47 U.S. companies. Additionally, with Miller’s appointment, it will shift its focus away from early-stage deals into later-stage companies that already have both revenue and customers, and are tapping the private equity marketplace for expansion capital.

Can GE Bring Its Portfolio To Life?

While most of the layoffs are slated to occur in investment banking divisions due in large part to the shriveled IPO market, private equity groups aren’t likely to survive the bloodbath unscathed.

GE Equity, the private equity arm of GE Capital, plans to lay off a third of its private equity executives and is shuttering its San Francisco office. Quite possibly, the reduction in headcount could be due to a marked decline in GE Equity’s investment pace this year.

According to VentureXpert, the Stamford, Conn.-based company pumped approximately $695 million into about 100 companies in 2000. Although there is still a month and a half left to go in 2001, GE Equity has put just $133 million to work in 31 companies. Thus, with fewer deals getting done, it seems only logical that the firm would need less manpower on board.

What is more, the firm has made a few bad investments in the past that may have tarnished its portfolio, including the now-defunct @link Networks Inc., a competitive local exchange carrier (CLEC), and Buildnet Inc., which had developed a software product for residential homebuilders.

Eric Jones, a spokesman for GE, confirmed that 40 jobs already had been slashed across the board, including the five employees that worked in the firm’s San Francisco office.

“Given the market conditions, it is no longer strategic for us to be there, so we decided to close [that office],” Jones said, adding that GE Equity will continue to make investments in the Silicon Valley region from its Stamford, Conn., location.

Jones went on to say that GE Equity does not expect that it will have to implement any additional cost-cutting measures.

CSFB Forecast: Cloudy

For its part, CSFB Equity’s future remains unclear. One former staffer notes that the domestic private equity group has not yet seen layoffs, but fears employees there, too, will be led to the chopping block.

“We’re in for some changes, but it’s just at the beginning and we haven’t really seen it yet,” he said.

If the public markets don’t improve soon, the gray skies over CSFB’s private equity group could unleash a storm.

“The experience has been in investment banking, if things get really bad, it’s across the board because there’s just no activity,” the former CSFB employee said. “We’re all watching the Nasdaq to see if it stabilizes.”

A CSFB employee confirmed that layoffs have in fact taken place across the company in an effort to reach an overall 15% reduction in headcount. The source also said that while some of the layoffs are still being attributed to staff redundancies resulting from CSFB’s February acquisition of Donaldson, Lufkin & Jenrette, which cost the company $12.4 billion, others are being determined by division and individual employee performance.

If that is indeed the case, CSFB’s equity group may looking at layoffs. The firm has only invested $76 million thus far this year, a paltry sum compared to the $453 million it spent last year, according to VentureXpert. It is highly unlikely that the company will be able to invest over $300 million in the last few months of this year.

CSFB has also invested in some dotcom dogs in the past, such as and Internet talk radio programmer, which have no doubt resulted in some downward drag on the overall performance of its private equity portfolio.

The same headhunter receiving Thomas Weisel resumes confirmed that he has also received an inordinate amount of CSFB private equity resumes.

Will JPMP Give Chase?

Interestingly, a large number of resumes have also flooded in from JP Morgan Chase & Co.

“I think it was in part because of the merger and in part because people are anticipating the worse to come,” he said.

While it seems the bulk of the bloodletting at JP Morgan indeed happened after the January merger, in a quarterly earnings call with investors back in October, the investment bank reported a $103 million loss in its private equity arm for the third quarter.

As a result, the bank’s investment arm, JP Morgan Partners, has begun a biannual strategy review to reevaluate its strategy and attempt to stem any further losses to its parent company. While the review is designed mainly to analyze JPMP’s portfolio for long-term risk factors, it may ultimately lead to a bout of layoffs if the firm deems them necessary to improve its overall performance.

JPMP has not issued an official statement with regard to layoffs, however.

Carolina Braunschweig can be contacted at:Carolina.Braunschweig@tfn.comDanielle Fugazy can be contacted

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