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Silicon Valley Bank Is Buying MoffettNathanson. Is it a Good Move?

By Bram Berkowitz – Dec 15, 2021 at 11:34AM

Key Points

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MoffettNathanson is a research firm specializing in the media, communication, and technology sectors.

Venture capital and start-up bank SVB Financial Group (SIVB.Q 1.12%), the parent of Silicon Valley Bank, recently announced that it will purchase the equity research firm MoffettNathanson for an undisclosed price. MoffettNathanson has been a stalwart of sell-side research in the media, communications, and tech sectors.

While equity research is not necessarily a big direct revenue generator, it should help boost Silicon Valley Bank's growing investment banking division.

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Image source: Getty Images.

How equity research boosts investment banking

In 2019, SVB purchased investment bank Leerink, which focused on the healthcare and life sciences industries, in order to bolster its capabilities in start-up banking. As SVB was already providing banking services to start-ups, venture capital, and private equity companies, building out an investment banking operation made sense. The expansion allows it to help its clients in additional areas such as mergers and acquisitions, initial public offerings, leveraged finance, and private placements.

Since the pandemic began, the investment bank has really been rocking. SVB claims it serves 60% of the U.S. venture capital-backed companies that went public in the first nine months of 2021. Last year, the Leerink unit brought in revenue of more than $480 million, up from $252 million in 2019. Through the first three quarters of 2021, Leerink's revenue was $393 million, and SVB is projecting full-year revenue of between $525 million and $550 million for the unit. And for 2022, management is projecting Leerink's revenue will grow to between $625 million and $675 million.

Because of its successes, management has been beefing up the unit. It added 87 investment bankers in 2021, more than doubling the division's size. In Q3, SVB extended Leerink into the world of technology investment banking. Next year, it plans to add another 35 to 50 bankers, specifically in technology equity capital markets, and fintech.

So where does MoffettNathanson fit in? Equity research firms, which cover stocks, make buy and sell recommendations, and offer price targets, are also tools that investment banks can use to pull in more business. For instance, the equity research firm comes up with investment ideas. The sales team can then pitch those to clients, who will ideally use SVB's trading desks to execute those commission-generating trades. There are other ways equity research can add value, but that's a primary example.

A nice addition 

While the exact purchase price has not been made public, I would imagine it wasn't anything too material to the bank, which with its excellent earnings has been essentially printing money over the past few years. MoffettNathanson, long seen as a strong research firm, will help SVB carry out its expansion into the tech sector. It will also be able to benefit from all of the unique data and insights that SVB collects on a daily basis, simply by virtue of its work with the start-up, VC, and PE communities. This certainly seems like a nice addition to SVB's investment banking division, which continues to grow stronger every year.

SVB Financial provides credit and banking services to The Motley Fool. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool owns and recommends SVB Financial Group. The Motley Fool has a disclosure policy.

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