Investment banks are finally back in a hiring mode, anticipating an upswing in merger activity in 2005 after three dismal years of layoffs and cost cutting.

Though Wall Street firms remain cautious, boutique investment banks focused on the middle-market the bread-and-butter of deal-making in Los Angeles are searching for analysts and associates with the expectation of an expected economic rebound next year.

Bankers say several factors are driving M & A; activity. Public companies and private equity firms are flush with cash. Borrowing remains cheap. And higher valuations are attracting more companies to sell or recapitalize.

John Mavredakis, senior managing director at Houlihan Lokey Howard & Zukin in Century City, said his firm has made 187 new hires this year and now has 700 employees, although some haven't yet started. Hiring is strongest for junior-level analysts and associates straight out of college, with 55 new hires set to join the firm next summer, about half of them in Los Angeles. But demand remains weak for mid-level investment bankers.

"We're very optimistic about the mergers-and-acquisitions market for next year because lots of cheap money is driving investment banking," Mavredakis said.

Andy Gordon, co-head of investment banking and global media at Goldman Sachs Group Inc. in Los Angeles, said the company is taking a cautious approach to hiring even though the business climate seems to be on the rise.

"The opportunity for investment growth is as high as it's ever been in Los Angeles because the middle-market is fertile," he said, adding that entertainment, defense and biotech sectors are ripe for mergers and new start-ups.

Gordon said the hiring last month of ABC television network Chairman Lloyd Braun to run Yahoo Inc.'s media and entertainment group in Santa Monica suggested that Los Angeles remains the most important arena for content creation. "We are clearly bullish on Los Angeles as a commercial and economic market," he said.

Industries in spotlight

Besides entertainment, industries ripe for takeover activity include computer software, broadcasting, and leisure and publishing, according to FactSet Mergerstat LLC in Santa Monica.

Many of the deals next year will reflect the growing dominance of private equity firms and hedge funds, and the return of strategic buyers. Mega-deals also are making a comeback, reflected by the $11.5 billion marriage of Sears Roebuck & Co. and Kmart Corp.

Investment bankers point to a strengthening deal flow so far this year. The number of mergers and acquisitions announced in the third quarter jumped 20 percent from the year-earlier period, while the value of deals soared 70 percent nationwide to $530.2 billion, up from $312.4 billion in the third quarter of 2003.


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