The insider’s guide to investment banking and capital markets.

August 01, 2005

Demand Soaring For Healthcare Bankers

Expectations that the rebound in investment banking activity in the healthcare sector will continue is leading to a bit of a midsummer hiring frenzy as middle-market firms, banks and boutiques scramble to beef up their lineups of senior level bankers. Many of the firms that used to bank middle-market healthcare companies, which is where all the action is, have been subsumed by larger entities, leaving a void that up and comers are eager to fill.

"The squeeze is on," says Ted Martin, chief executive of Chicago-based Martin Partners LLC, which recruits in the healthcare sector. "The middle-market investment banks have plenty of deal flow, so [these firms] have got to add people to make hay while the sun shines."

Players increasing their headcounts include HSBC Holdings, Leerink Swann & Co., Harris Nesbitt, SG Cowen & Co., RBC Capital Markets, and Wachovia Securities.

They are targeting experienced bankers with established relationships. "The Alex Browns, Robbie Stephens, H&Qs and Montgomerys are gone," noted Gary Goldstein, founder and chief executive of the Whitney Group, a Wall Street recruiting firm in New York. "Those were the traditional bankers in middle-market healthcare. There is now a land grab, and the new firms are trying to establish themselves and take over the [middle-market] franchises."

Recruiters are being inundated. "The kinds of people who are being hired right now at the senior level are the ones who bring significant relationships with them," says Goldstein. The action has been so frenetic for healthcare as well as FIG bankers, Goldstein says, that he has already had to postpone his summer vacation twice.

"The senior people have the relationships with the client, and that is where you build the top line," says Robert Fraiman, head of corporate finance at Cain Brothers & Co. in New York, a boutique healthcare firm that is also looking to hire senior talent.

The healthcare industry already claims 15% of U.S. gross domestic product, and that statistic, coupled with the aging of the baby boomers and technological advances, makes healthcare a hot sector with excellent growth prospects. The volume of announced U.S. merger-and-acquisition deals has risen significantly, to $20 billion on 53 deals during the first three weeks of July from just $2.6 billion and 64 deals in April, according to Thomson Financial. On the initial public offering front, only two issues priced in April, followed by three in May, 11 in June and seven so far in July. There are currently 17 healthcare IPOs in the pipeline.

The poachers

One bank poaching healthcare bankers is HSBC. Last year, it hired John Studzinski from Morgan Stanley to lead an effort to overhaul its investment banking business, and three weeks ago, it named four senior healthcare bankers. In New York, Jane Pritchett Henderson, who has 16 years of experience, joined from CIBC World Markets as a managing director specializing in biotechnology companies. Katherine Wolf moved over from Bear Stearns as a managing director responsible for medical device companies. In London, Oliver Siegel, formerly of Merrill Lynch, was appointed head of HSBC's European healthcare team. Also, Hiddo Van Voorst tot Voorst joined from JPMorgan. All four report to Michael Baldrock, the New York-based global head of healthcare banking.

"HSBC has been very aggressive in hiring bankers to focus on the middle-markets," says Richard Lipstein, a managing director at Boyden Global Executive Search in New York. "It will be interesting to see if they will be successful. It has not been easy for large global banks to successfully penetrate the middle market sector."

Another firm scooping up experienced bankers is Leerink Swann. Two weeks ago, the Boston-based healthcare boutique says it hired five new professionals, most with more than 10 years of healthcare investment banking experience. All report to Dave Ogens, who joined the firm four months ago as the head of investment banking from Goldman Sachs, where he was head of technology banking. Two of the bankers hired were from Harris Nesbitt: Ken Lerner, who was head of life sciences at his former firm, will be a managing director and head of biotechnology banking; and Mike Ward, who joins as a director in biotech. Donald Munoz joined from Deutsche to oversee medical technology, and Matt Judson, who has more than 20 years of experience, will lead the M&A effort. Until recently, Judson was with Boston-based boutique Lane Berry & Co., but previously he was co-head of European healthcare banking for Robertson Stephens. To spearhead PIPEs and private placements, Donald Notman was hired from Jefferies & Co.

"We have seen a bigger demand from our clients in the small- and midcap market place for expertise," says Jeffrey Leerink, chairman and chief executive of Leerink Swann.

"In the sub-$1 billion market-cap companies we cover, we see nothing but opportunity," adds Ogens.

Harris Nesbitt, the investment-banking arm of BMO Financial Group, a Canadian-based bank, is also making a push. In December, James Love was hired to head the healthcare group. He worked previously at MTS Health Partners but spent 15 years at Merrill Lynch. When Lerner decamped to Leerink, Love hired Christine Gallagher, the former head of healthcare at C.E. Unterberg, Towbin, to replace him and lead Harris Nesbitt's life sciences group. Industry insiders say the move makes sense because Gallagher was used to the universal bank atmosphere after spending 15 years at Chase prior to departing for Unterberg when Chase merged with JPMorgan.

"Healthcare is largely a middle-market business," says Love. "Once you peel the onion back and get past the big drug companies, a few big medical device companies and a couple big hospitals companies, it is a middle-market business."

The healthcare banking team at Harris Nesbitt now numbers 13.

Also in early July, Susquehanna Financial Group hired veteran Jamie Streator from Thomas Weisel to head its healthcare banking initiative.

In June, RBC Capital Markets hired Kevin Davies as a managing director in its life sciences banking group. He came from Wells Fargo Securities but previously worked at Lehman Brothers, Morgan Stanley and Robertson Stephens.

In May, SG Cowen snapped up John Chambers, a managing director and senior member of Lehman Brothers' healthcare banking team. He joined as a managing director responsible for biotech and specialty pharma.

The bet on healthcare has also prompted some firms to expand their footprints. In June, Wachovia Securities, continuing to break out of its regional shell, expanded its coverage in the life sciences sector by opening a West Coast healthcare office in San Francisco. It hired Michael Fekete, who has 16 years of experience, to run the office and build a stronger presence on the Coast. He was a founding member of the healthcare unit at Oppenheimer & Co. until it was bought by CIBC World Markets, and then continued at CIBC until jumping to Wachovia.

The right fit

Still, with so many banks looking for senior people, there is some difficulty in landing the right person. "There is not enough talent in the market right now, so everyone is looking for the same person," says Martin.

Whitney's Goldstein says hiring now makes sense rather than waiting for the more common recruiting period that follows bonus season. "It is smart to hire now rather than waiting until the end of the year, when you will have four or five firms bidding for the same talent," he says. "You've got a better chance of actually getting the person successfully."

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