Local shops aren't immune to the broader slowdown in investment banking and corporate finance activity. In September, there were no initial public offerings of stock anywhere in the country, let alone in Southern California. Bond deals are less common too. What's more, the radical decline in public finance is mirrored by a drop in private deal-making as well.

So the high-finance boys are getting hit yet unlike past cycles, fewer money outfits seem to be tumbling to the canvas this time around. Why? Investment bankers, and other financiers, dodge and weave more than they used to.

Even before this year's slowdown and the events of Sept. 11, financiers have been tearing down divides within the industry. Investment bankers became venture capitalists in the late 1990s, and M & A; troops learned a lot about restructuring. Like deal lawyers who seem to prosper in good times or bad, financiers these days angle to advise or finance companies through growth or retrenchment. If the market zigs, they zag.

Distressing trends

Brentwood-based Barrington Associates, for example, has grown into perhaps the region's premier independent middle-market mergers and acquisitions advisory shop in the last 10 years. Throughout the 1990s, businesses were buying one another, and Barrington prospered.

Now, the deal business is slow. But Barrington is not firing; indeed, it needs more bodies, said Ed Bagdassarian, Barrington managing partner. "We have a group of professionals who specialize in selling distressed companies, and that business is growing quickly for us," he said.

Strategic buyers are willing to buy distressed companies, and in fact some view mergers and acquisitions as perhaps the only route to grow, Bagdassarian said.

"Yes, overall valuations are down, and the deal business is down. But the market for strategic acquisitions is still very good," he said.

A decade ago, Barrington left the distressed-sale business to shops that specialized in it, such as Westside-based Chanin Capital Partners. But no more a sign of the increasing flexibility seen in the financial world.

Another chameleon is James Montgomery, managing partner at Santa Monica-based Digital Coast Partners. A couple of years back, Montgomery talked about making Digital Coast into a leading venture shop. But venture markets died about the time Montgomery got commitments for his venture fund.

Today, many troubled tech companies need to merge with partners that have cash and staying power. Enter Montgomery and his troop of 15 bankers.

"We have about a dozen assignments now. We are getting the deals in (web-related) wireless, infrastructure and storage. We are also working in enterprise software and content delivery," Montgomery said.

Now, that strategy has become a living, as Montgomery is sought out by tech companies needing to merge or face death.

Similarly, Century City-based Houlihan Lokey Howard & Zukin, now with 500 employees worldwide, expects business to rise in 2001 from 2000, due to heavy restructuring and cross-border merger work.

"In this market, we have actually been taking the initiative and generating deals for clients proactively," said John Mavredakis, co-head of investment banking for HLHZ.

Owners of small companies are willing to take stock in the buying company, as they feel the acquirer's stock price has come down to realistic levels. And without so much financing needed, there are fewer obstacles to a transaction getting the necessary John Hancocks on it.

To be sure, there are houses cutting back indeed the historic name of Sutro & Co., a fixture in West Coast investment banking circles since 1858, is getting wiped out. Earlier this year, Sutro, based in both Los Angeles and San Francisco, merged with Tucker Anthony. But the combined outfit was purchased by Royal Bank of Canada in August, and merged into the bank's captive brokerage, Minneapolis-based Dain Rauscher Inc. That consolidation means layoffs in Los Angeles.

"There won't be any investment banking presence here," said Scott Wendelin, managing director with Sutro whose employment with Sutro will end this year. "Even the name Sutro will be gone."

Banking staff reduced

Newport Beach-based Roth Capital Markets also has been reducing investment banking staff, and East Coast-based Credit Suisse First Boston is said to be reducing presence in its large Century City office, according to people in each company.

But for every sad story in the securities world, there seems to be another of survival and prosperity. Some local outfits never adopted a model that was vulnerable to a tech or tourism-related downfall.

"We always focused on research and trading, and we never had that overhead of investment banking. As a result, we actually have been adding people here," said Bryant Riley, president of West Los Angeles-based B. Riley & Co., which researches small-cap California companies. "A year ago we had four analysts, now we have seven... a year ago we had three salesmen, now we have five salesmen."

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His new book is "The Pied Pipers of Wall Street: How Analysts Sell You Down the River," published by Bloomberg Press. He can be reached at sevencontinents@mindspring.com.

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