Thomas Weisel Banks With Japan –

Thomas Weisel Partners, a San Francisco-based merchant bank, in September formed an alliance with Japanese securities firm Nomura that is expected to induce cross-border M&A activity for both parties, as well as inject capital into Thomas Weisel’s private equity efforts.

The relationship between Thomas Weisel and Nomura is meant to mimic the relationship between Thomas Weisel and the California Public Employees’ Retirement System, that began in January 2000. At that time, CalPERS purchased a 10% stake in the merchant bank for $100 million and committed further capital to the group’s private equity funds.

Similarly, Nomura purchased a 3.75% stake in the Thomas Weisel parent company for $75 million, while investing $125 million in private equity initiatives sponsored by Thomas Weisel Partners. “CalPERS has been so important to us and it’s such a great partnership. We wanted to have a similar type of partner to CalPERS,” said Blake Jorgenson, chief operating officer at Thomas Weisel. “We structured a deal, which while not as large as the CalPERS deal could be equally as important to us over time,” he added.

Jorgenson said the firm thought it was important for Nomura to take a stake in their group. “That was important from our perspective because it lends a very high level of seriousness from the relationship,” he said. “We wanted them to benefit with us as partners in the equity value of the firm and, we wanted to give them the right incentive to be able to help generate more equity value.”

Also, the Japanese bank plans to raise up to an additional $500 million for future Thomas Weisel Partners’ private equity funds. Some of the initial $125 million commitment will likely be invested in Thomas Weisel’s next Capital Partners Fund, due out next year, with the remainder going into funds raised over the next two to three years.

So as not to clutter the intent of the alliance with too many expectations, right now the relationship is focused solely on increasing cross-border M&A. That initiative will allow both parties easier access to the other’s relationships, which are often hindered by cultural barriers.

“Our historical relationship with Japanese corporations are okay, but they’re not deep, primarily because of culture,” said Jorgenson. “So for us to be able to have Nomura bankers, who have deep relationships with those people, open doors for us will be very helpful. And for them, the same thing with some of our relationships in some of the technology companies [we work with].”

In order to accomplish this exchange of contacts, the two parties will also exchange some professionals between their offices. “Our employees are extremely excited about that opportunity, to be able to quickly get access to clients through someone who is sitting right in our office and vice versa,” Jorgenson said.

While the formal arrangement does not include much beyond the aforementioned components, the possibilities are endless. Jorgenson said should the prospect arise, Thomas Weisel would welcome the idea of doing side-by-side investing with Nomura, or creating similar relationships with partners in other regions.

Less likely, but tangible now is the prospect of Thomas Weisel expanding its focus on U.S. companies to include Japanese companies. “We certainly don’t have a mandate to [look at opportunties in Japan] now. It would be easy to do that, but our real activities in Japan are going to be focused on M&A,” Jorgenson said. “There may be an outgrowth, but we’re managing our expectations on that one.”

The Guinea Pig

Adding to the excitement and optimism from Thomas Weisel, is the knowledge that Nomura has already pulled off a similar relationship successfully. In 1988, the Japanese firm invested $125 million in Wasserstein Perella for a 20% stake. When Dresdner Bank AG bought out the boutique investment firm last year, Nomura began looking for a new U.S. partner.

“We have every reason to be bullish and optimistic about this because it worked pretty well for Wasserstein. That was a 12-year relationship that proved to be fruitful for both sides,” said Amanda Duckworth, a spokesperson for Thomas Weisel. “There’s a precedent here; it’s not as though we’re charting completely new waters.”

Thomas Weisel’s private equity arm focuses on growth capital, with a strong interest in buyout opportunities. The firm early this month completed the buyout of Racal Instruments Group, a manufacturer of test systems for the communications, defense and industrial markets for an undisclosed amount (see Weisel, J.F. Lehman Team). Thomas Weisel, founded in 1999, has total capital commitments in excess of $1.3 billion and has invested over $800 million to date. The firm has additional offices in New York, Boston and London.

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