Investment banking giant Goldman Sachs has bought online investment bank Epoch Partners.
US investment bank Goldman Sachs has concluded a deal to buy Epoch Partners, the struggling online investment bank founded in 1999 by investors including online brokers Charles Schwab, TD Waterhouse and Ameritrade. The terms of the deal will allow Goldman to distribute new IPOs and offer access to its equity research to the 10 million customers of Charles Schwab and TD Waterhouse. The deal gives Goldman valuable access to the retail investment market, and suggests that Goldman, which lacks a large brokerage sales force, is putting its faith in the potential of low-cost online broking.
As for Charles Schwab and TD Waterhouse, the deal allows them to both lower their business costs and offer their customers greater access to new IPOs and equity research tools. Over the past twelve months, online brokers have jumped into the IPO market as they have sought to broaden the range of products and services they offer. The problem is that at the same time as more online brokers are looking to underwrite and distribute IPOs, the IPO market has slowed down dramatically. Schwab and TD Waterhouse will be hoping the deal with Goldman gives them a competitive edge.
That brings us to Epoch. Touted at its launch as a vehicle to offer hot new technology IPOs to retail investors, Epoch participated in less than a dozen stock offerings. Its poor record points to the entrenched dominance of the top half dozen investment banks in the IPO market. It also highlights the difficulties faced by small online FSIs that lack any bricks-and-mortar distribution network. For Epoch, being taken over by a player such as Goldman may have offered the only hope of survival.
