text: William Blair investment banking unit grows while rivals shrink | Crain's Chicago Business
  Hiring, M&A up at bank
  William Blair growing investment business while rivals contract
  William Blair & Co. CEO John Ettelson says he plans to keep growing the Chicago-based company's investment banking division.
  William Blair & Co.'s strategy to expand its investment banking business by scooping up refugees from shrinking rivals paid off big this year. The challenge is to do it again next year.
  By year-end, the Chicago-based private company will have advised on 70 mergers and acquisitions worth $15 billion, it estimates, up from 32 deals worth just $2 billion in 2009.
  Long known as a conservative Midwest stalwart, William Blair has grown to 215 banking professionals from 130 in 2008, including traditional client-relations bankers and sector specialists. For instance, in February the firm hired Raphael Grunschlag, formerly a managing director at Merrill Lynch & Co., to lead its European technology banking team from London.
  Many rivals, by contrast, have contracted under the weight of increased regulatory scrutiny, their own debt and trading strategies gone awry.
  "There's no need for us to think about things the way some of the others in the industry have," William Blair CEO John Ettelson says. "Those same pressures just aren't affecting us." He says he plans to keep growing the bank this year, even though U.S. economic uncertainty, slowing Asian growth and Europe's struggles could shave profits.
  William Blair participated little, if at all, in the mortgage securities and derivatives markets that were at the root of the financial crisis. As a result, it hasn't had to deal with the expense and distraction of federal regulatory probes like many of the larger banks, and it's less affected by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was designed largely to address those issues.
  Also buttressing the firm is that it is debt-free. The 175 partners who own William Blair believe that without debt the value of the firm fluctuates less with the public markets and allows it to use cash-based compensation to better attract talent, says Mark Brady, global head of mergers and acquisitions.
  William Blair also hasn't suffered the fallout of its own bad bets because it doesn't trade for its own account. JPMorgan Chase & Co.'s "London Whale" gamble on synthetic credit securities cost it billions of dollars.
  Some of these regulatory and market issues led a few midsized peers, such as New York banks KBW Inc. and Jefferies Group Inc., to merge with other firms this month.
  With 150 investment bankers in Chicago, William Blair's investment banking arm is second only to BMO Capital Markets in the city. Globally, it's dwarfed by the major New York banks, but they have been pulling back in Chicago and elsewhere. William Blair has expanded in Boston, San Francisco and London, and it opened an office in São Paulo last year. Next year, it plans to add 25 to 40 professionals and open an office in Frankfurt.
  "On the face of it, it's clearly ambitious," says Chris Allen, an analyst at another fast-growing investment bank, New York-based Evercore Group LLC. "It's fine to expand like that as long as it's showing up in the numbers."
  While it formerly specialized in deals of less than $150 million, William Blair's sweet spot is higher now, from $200 million to more than $1 billion, thanks to bigger international deals this year, such as British buyout firm Charterhouse Capital Partners LLP's $1 billion-plus purchase of Bartec Holding GmbH and the sale of the chemical division formerly owned by Northbrook-based Old World Industries LLC to Bangkok-based Indorama Ventures PCL for $795 million.
  As foreign economies have sputtered, William Blair peers such as Minneapolis-based Piper Jaffray Cos. and St. Petersburg, Fla.-based Raymond James Financial Inc. have shuttered foreign offices this year. Through Nov. 15, worldwide deal activity had slowed 6 percent to $2.29 trillion from the same period last year, according to London-based industry data and consulting firm Dealogic PLC.
  "The midtier and midsized banks are finding out how difficult it is to compete in international markets," says Michael Wong, a Morningstar Inc. analyst in Chicago who covers investment banks. "Very few of them have successful operations."
  While he doesn't cover William Blair because it's a private firm, Mr. Wong suspects that's the very reason it's faring better than some larger, publicly traded banks. Partners at a private firm using their own capital are more likely to invest cautiously over a longer term and can afford to wait for the payoff, he says.
  William Blair's asset management business, which accounted for 57 percent of the firm's revenue last year, has been an anchor for the deeper foray into the more cyclical business of investment banking, which made up 26 percent of income. Assets under management are also expanding, rising to $47.45 billion as of Sept. 30, from $41.16 billion at the end of last year.
  The company won't disclose its profits, but Mr. Ettelson says the investment bank division was booking the biggest margin growth this year. William Blair's overall revenue rose 6.7 percent last year, to $586 million, over 2010.
  All of the company's business, including equity research, sales and trading, has been expanding, albeit at a slower rate than investment banking. The 1,150-employee firm has more than recouped the 10 percent workforce cutback it made in late 2008, when it felt the brunt of the recession.
  Mr. Ettelson, a former investment banker himself, expects to keep expanding the division at the same steady pace, even if profit growth slows next year.