Growth investors

Two Boston investment banks are opening shop on the West Coast. Another is breaking down walls in its headquarters office as it hires more staff. Still others are bolstering their international ties.

Call it Beyond the Bubble, the Next Chapter.

After several years of caution following the financial market meltdown of 2000-2001, Boston's investment banks are back in growth mode.

"There are a lot of drivers that we like," says Elliot Williams, president of Mirus Capital Advisors Inc., which is boosting the size of its Burlington headquarters by 20 percent. "Everything seems to be firing on all cylinders."

That confidence is a direct result of several consecutive years of strong merger and acquisition activity, along with a growing overall assessment that the economy and business activity are finding their way back to a solid footing.

The United States saw 10,389 M&A transactions totaling just over $1 trillion in 2005, up from 10,217 deals totaling $746 billion in 2004, according to FactSet Mergerstat LLC, a global M&A data provider.

Last year's activity still lagged the record of 2000, when there were 12,790 U.S. deals totaling $1.3 trillion. But bankers are optimistic that the trend will continue upward.

"I do think in the next 24 months we can surpass those numbers," Williams says. "We're seeing a very vibrant deal environment, where deals are being done with the right strategic thinking and with the proper amount of due diligence."

Most other local bankers concur, and are moving to strengthen their organizations to capture some of the anticipated deal flow. For example, McNamee Lawrence & Co. in late 2005 opened an office in San Francisco, where it expects to hire three more deal professionals this year. Revolution Partners LLC just hired rainmakers to open two new offices: one in San Francisco, and another in Los Angeles.

"It's always been in our plans to have a West Coast presence," says Peter Falvey, Revolution's co-founder and managing director. Heading the San Francisco office will be Michael Barker, formerly a technology banker at Morgan Stanley and Credit Suisse First Boston. Falvey says his firm will seek a veteran private placement executive to head the Los Angeles office.

"For a firm that will be 25 people, we'll have all the reach you need for the two products we offer, which is M&A and private placements," he says.

Indeed, with its renewed vigor, it can be argued that Boston's investment banking community is on the verge of returning to a full complement of capabilities after melting down, along with the stock market, at the turn of the millennium.

Along with the locally based Adams Harkness and Tucker Anthony, Boston offices of Alex. Brown, Hambrecht & Quist, Robertson Stephens and Montgomery Securities provided abundant banking services to young New England companies throughout the 1980s and 1990s.

All of those firms now are gone, with the sole exception of Adams Harkness. And that firm gave up its independence at the beginning of this year, when it was acquired by Canaccord Capital Inc. of Vancouver.

But even as it recovers, Boston's investment banking community definitely has a pronounced focus. The fastest-growing shops -- such firms as America's Growth Capital, Revolution Partners, McNamee Lawrence and Mirus -- are primarily M&A advisers.

America's Growth, for example, closed 18 M&A transactions last year, up from just four in 2004. Revenue soared 80 percent, to $18 million.

This year, the firm expects to add at least another half-dozen members to its team of 20 professionals. "As we find a good banker who wants to join us, we'll bring them onboard," says co-founder and managing partner Ben Howe.

In the new financing environment, however, there is less reward in being a full-service shop. Public underwritings remain scarce, and maintaining a market research capability is costly. Leerink Swann & Co., arguably the most integrated full-service investment bank in Boston, has succeeded by concentrating deeply in a single niche, life sciences.

And firms that have broader ambitions are finding it necessary to link with larger organizations. Adams Harkness combined with Canaccord Capital to create "a global platform for growth companies," says former Adams Harkness CEO Kevin J. Dunn, who will head the U.S. operation of Canaccord when the merger finalizes later this month.

Canaccord will have seats on all of the major U.S., Canadian and U.K. stock exchanges. "We consider ourselves to have 'bulge-bracket' capability with a boutique focus," Dunn says.

An international orientation also is part of Boston's new investment banking culture. The 3-year-old McNamee Lawrence, for example, had a London office before it branched into San Francisco, because that's where the deals were.

In 2005, McNamee says, "we sold a U.K. company to an Indian company, a Scottish company to a U.K. company, and a Boston company to a U.K. company.

"The world is flat," he says. "Everybody's got a cell phone. Everybody's got the Internet."

Some bankers remain a bit gun-shy about expansion. Chris Covington, who founding Covington Associates in 1991, has watched more than one ambitious investment bank get swamped in the ebb and flow of deal activity.

Covington Associates last year closed 22 deals, more than double its volume of 2004. The firm also added four investment professionals over the past 15 months, including Timothy McMahon, the former head of Adams Harkness.

But now, Covington says, "we're pretty cautious, to be honest. ... A lot of what's driving activity right now is cheap and plentiful debt." Should interest rates rise, or lenders experience "a big hiccup" with a large borrower, Covington says, the financial spigot could tighten -- turning down the tap on deal flow.

"It's not easy to lay people off," he says. "I'd rather err on the way up than be brutal on the way down."