“After the Dot Com (Tech) bubble burst early this century, the federal government tried to blame and destroy investment banker Frank Quattrone. He had the truth behind him and the mental toughness and financial resources to fight them, and he eventually won every matter. I don’t know him,…
…but I understand what he has been through. It’s tragic that in America, if you are around big business failure (which happens all the time in a competitive free market…”creative destruction”), the government seems to always come after you, with a bias that wrongdoing must have occurred, and often accuse business people with false charges of negligence, fraud, etc.. I believe this hurts prudent business risk taking/entrepreneurship, our public capital markets, and our economy and jobs. It’s really nice to see that Mr. Quattrone has made such a successful comeback.”, Mike Perry, former Chairman and CEO, IndyMac Bank
December 20, 2015, Maureen Farrell, The Wall Street Journal
Behind Frank Quattrone’s Comeback in New Tech Era
Famed deal-maker is again in high demand, but controversy lingers from his dot-com days
Frank Quattrone leaving a federal courthouse in New York in 2003. His conviction of obstructing an investigation into how shares of IPOs were steered to clients was overturned in 2006. He launched Qatalyst Partners in 2008. Deals by the firm have brought in more than $1 billion of fees. PHOTO: GINO DOMENICO/BLOOMBERG NEWS
By Maureen Farrell
When Aruba Networks Inc. was considering a sale of the wireless-networking company to Hewlett-Packard Co. last year, the board of directors turned to an investment banker who made his name during the last technology boom.
Frank Quattrone worked for 4½ months trying to nail down a deal. But then there was a problem. H-P Chief Executive Meg Whitman refused to negotiate with Mr. Quattrone because he had been so difficult to deal with in previous deals, says someone close to Ms. Whitman.
Aruba brought in another investment bank to finish the $3 billion takeover agreement. That firm was paid $7.7 million for its work. Mr. Quattrone’s firm got $30 million.
In this new era of rising tech stars, the 60-year-old Mr. Quattrone is again one of the biggest deal makers, often beating competing bankers at much larger firms who are a generation younger than he is.
Mr. Quattrone is still controversial and still does business much as he did in the dot-com era. A relentless networker who isn’t shy about telling potential clients about the high prices he got in earlier deals, he also ruffles the feathers of adversaries by pushing beyond the usual rough and tumble of deal-making, according to some bankers and executives.
The strategy is so effective that competitors rarely even bother trying to score points by bringing up his previous regulatory woes. In 2004, Mr. Quattrone was convicted of obstructing an investigation into how IPO shares were steered to clients. The conviction and a ban from the industry were overturned in 2006.
In the past seven years, Mr. Quattrone and his 40-person team of bankers at Qatalyst Partners LP in San Francisco have advised on more than 85 deals worth a total of at least $158 billion, sometimes outmaneuvering much larger firms. Those deals have generated more than $1 billion in fees for Qatalyst, consulting firm Freeman & Co. estimates.
Mr. Quattrone succeeds partly because the latest crop of Silicon Valley startups has something in common with the last one. Many of the founders, employees and early investors at those companies want to cash out, now or later, and no one makes tech deals happen like Frank, as he is known.
“You can’t create the Sistine Chapel using paint by numbers,” he says in an interview. “Every deal we do is a custom piece of art.”
This article is based on interviews with Mr. Quattrone, three of his partners at Qatalyst and more than 20 people who have done business with him or Qatalyst.
In the late 1990s and early 2000s, Mr. Quattrone was the go-to guy for tech companies hoping for a hot initial public offering. In 1997, his team at Deutsche Morgan Grenfell led the underwriting for the IPO of Amazon.com Inc. He earned a $120 million pay package at Credit Suisse First Boston for his work in 2000.
This time, Mr. Quattrone is using his network of venture-capital investors and technology executives developed over more than 30 years in Silicon Valley to help orchestrate sales of companies. When he launched Qatalyst in 2008, Mr. Quattrone predicted that fewer tech startups would go public. Instead, large companies would acquire small ones to gain access to their technological innovations and fast-growing new markets.
He was right. This year, nearly $360 billion in mergers and acquisitions of U.S.-based technology companies have been announced through Friday, a record high, according to research firm Dealogic. In contrast, only about 17% of IPOs in the U.S. were done by tech companies.
Growing skepticism of the enormous valuations that venture capitalists are putting on private tech companies could push some of them to sell, rather than do an IPO. That would help Mr. Quattrone, since investment banks typically earn more from handling M&A deals than IPOs.
Mr. Quattrone was one of the first investment bankers to put down roots in Silicon Valley. His regulatory woes sidelined him for more than three years after the dot-com bubble burst. Mr. Quattrone went through a long period of “soul-searching,” he says. He didn’t think he would go back to investment banking but then decided to.
He has trimmed the bushy mustache and unruly hair that were part of his image for years. A framed caricature in his office shows Mr. Quattrone as a mustachioed pope.
Yahoo CEO Marissa Mayer says she sees Frank Quattrone at least every other week socially or to talk about business, including ‘broad management philosophies.’ PHOTO: LAURENT GILLIERON/EUROPEAN PRESS AGENCY
Mr. Quattrone has toned down some marketing tactics that used to help his team land deals, like the live mule sent to the CEO of a tech company who worried that wooing IPO investors would make him “feel like a mule.”
In a business where relationships open the door to billion-dollar deals, Mr. Quattrone’s long history in Silicon Valley gives him an advantage over younger rivals, according to company executives who have worked with him.
He still leans on longtime contacts and former clients, who help him arrange one-on-one dinners, drinks and golf outings to meet, greet and befriend young entrepreneurs.
Mr. Quattrone sometimes courts potential clients years before their companies are ready to make a deal, connecting them with his network of chief executives, directors and venture capitalists.
His ambition is as bold as ever. He says he wants to put together transactions “that would rock the world and change the industry,” not the “little deals that Morgan Stanley and Goldman Sachs wouldn’t take.”
A Morgan Stanley spokeswoman and Goldman Sachs Group Inc. spokesman wouldn’t comment on Mr. Quattrone’s remark.
His well-known aggressiveness rubs some people the wrong way. Rival advisers complain that Mr. Quattrone and his close-knit team have occasionally bluffed about the level of interest in companies being sold by Qatalyst.
In 2011, Google Inc. initially offered $30 a share, or about $9.4 billion, to buy Motorola’s cellphone business, according to a securities filing and people close to the sale process.
Qatalyst advised Motorola Mobility Holdings Inc. and pressed Google to increase its offer. If the takeover talks stumbled, Qatalyst warned, other would-be buyers might pounce, one person recalls.
Google boosted its bid to $40 a share, sealing the deal for more than $12 billion, by far the largest in the Internet giant’s history. It turned out that no one else made a bid for Motorola Mobility, according to a securities filing made after the acquisition was announced. A Google spokesman wouldn’t comment on the sales process.
Mr. Quattrone says he never exaggerates potential offers. George Boutros, who worked closely with Mr. Quattrone during the dot-com bubble and reunited with him at Qatalyst five years ago, adds: “People trust us and know that we’re honorable and ethical. You can’t be successful if you lie.”
David Cowan, a partner at venture-capital firm Bessemer Venture Partners, says executives at “more than one” large technology company have told him they won’t even consider buying any startup that is advised by Qatalyst.
Mr. Cowan says that attitude only enhances Mr. Quattrone’s appeal. “The more acquirers complain about working with Qatalyst, the more I think I want to use them,” he says.
Yahoo Inc. Chief Executive Marissa Mayer says she sees Mr. Quattrone at least every other week socially or to talk about business, including “broad management philosophies” and views on technology “shifts.”
They live in the same building in San Francisco and met at a black-tie dinner while Ms. Mayer was working for Google, now part of Alphabet Inc. He told her about searching Google for instructions on tying the bow tie he was wearing that night. She says they also talked in person the weekend after Yahoo hired her as CEO in 2012.
In 2013, Mr. Quattrone made several trips to New York to get to know David Karp, the founder and chief executive of blogging platform Tumblr. Jonathan Turner, a Qatalyst co-founder, knew a member of Tumblr’s board.
Tumblr soon hired Qatalyst to explore its strategic options. Ms. Mayer got one of the first phone calls from Mr. Quattrone and within a month announced the $1.1 billion purchase of Tumblr, her largest acquisition at Yahoo.
Ms. Mayer and Mr. Quattrone won’t comment on whether they have discussed her turnaround strategy at Yahoo or plan to explore a spinoff of the company’s core Internet business.
Last year, Mr. Quattrone had a glass of wine with billionaire tech investor Jim Breyer after a Qatalyst event in Jackson Hole, Wyo. Mr. Breyer is best known for his 2005 bet on a tiny social network called Facebook Inc. Mr. Quattrone declines to comment on the meeting.
Meg Whitman, Hewlett Packard Enterprise’s chief executive, refused to negotiate with investment banker Frank Quattrone because he had been difficult to deal with in previous deals. PHOTO: ANDREW BURTON/GETTY IMAGES
Mr. Breyer also owned a stake in Datalogix Holdings Inc., a data-mining company that had begun working with Goldman and other banks on a possible initial public offering. During the conversation, Mr. Quattrone offered advice on how Datalogix could broaden its customer base.
Over the next several months, Datalogix and Qatalyst talked extensively about the company’s future. Instead of the IPO, Datalogix decided to put itself up for sale and hired Qatalyst to look for a buyer. In January, Oracle Corp.acquired Datalogix for more than $1.2 billion.
“Frank helped us understand how Datalogix’s solution was so valuable to what Oracle was trying to build in the cloud,” says David Fialkow, another Datalogix director and managing director of venture-capital firm General Catalyst Partners.
Force of personality
Mr. Quattrone uses his “personality to get people focused and provide a sense of urgency and make a deal happen,” says Stewart Alsop, a partner at venture-capital firm Alsop Louie Partners.
Mr. Alsop was a director at Twitch Interactive Inc. when Qatalyst was hired to advise the popular Internet video channel on a possible sale.
The investment bank sent potential buyers a list of terms, asking them to agree and offer a purchase price, says someone familiar with the process. In August 2014, Amazon bought Twitch for about $1 billion.
The deal delivered a giant profit to early investors such as Alsop Louie. An Amazon spokeswoman declined to comment.
Mr. Quattrone’s clients don’t always walk away so happy. Ebates Inc. hired Qatalyst after the retailing website was approached last summer with a takeover proposal from Japan’s Rakuten Inc. Ebates co-founder Paul Wasserman says it was hard to reach Qatalyst after the firm negotiated its fee.
People close to the deal say Qatalyst didn’t drum up any other offers, and Ebates directors decided that company executives should negotiate a takeover price directly with Rakuten, which agreed to pay $1 billion.
A person close to Ebates estimates that the fee Qatalyst collected for its work on the deal was equivalent to roughly $1 million an hour. “If I had to do it over again, I would have said no” to hiring Qatalyst, says Mr. Wasserman.
Qatalyst declines to comment on the fee. Mr. Boutros says it sometimes is better for a company’s executives to negotiate directly with potential buyers. Mr. Quattrone adds: “We have no ego about that.” A Rakuten spokesman declines to comment.
In January, H-P’s Ms. Whitman told the chief executive of Aruba, Dominic Orr, over dinner at her house in Atherton, Calif., that she would move forward with the takeover only if Aruba hired another investment bank, says a person familiar with the negotiations.
That person says Mr. Orr agreed. He wouldn’t comment.
Mr. Quattrone tried to get Ms. Whitman to change her mind but failed. “H-P expressed our concerns about negotiating directly with Qatalyst Partners,” says a spokesman for Hewlett Packard Enterprise Co, which was spun off from the old H-P in November.
Ms. Whitman also hasn’t forgotten the “difficult circumstances” that she believes Mr. Quattrone and his team created while working on deals when she was eBay Inc.’s CEO from 1998 to 2008, the person close to her says. She declines to comment.
In 2011, Ms. Whitman was a new director at H-P when the company agreed to pay $11 billion for software maker Autonomy Corp. Qatalyst advised Autonomy on the sale, and she became H-P’s chief executive the following month.
The deal has been a nightmare. In 2012, H-P wrote down the value of Autonomy by $8.8 billion, blaming more than $5 billion of that on what it said was improper accounting designed to inflate the software company’s maker’s and profit.
Autonomy’s founder has defended the company’s accounting and accused H-P of smearing management at Autonomy.
Mr. Quattrone declines to comment on the sale but says he has a good relationship with Ms. Whitman and expects to work with her in the future. The person close to her says Ms. Whitman remains leery about Qatalyst but wouldn’t rule out buying other companies advised by Mr. Quattrone.