E*Trade Bank Manages Private Placement

When E*Trade formally introduced online investment bank E*Offering to the cyber-community in January, there was a brief mention that the IPO-centric venture might eventually take a leap into the relatively low-tech private placement market.

Now, just six months later, E*Offering has confirmed that it is currently underwriting its first traditional debt private placement in preparation for the upcoming completion of its own self-contained private placement service. According to Adam Violich, vice president of E*Offering’s private capital division, such an operation should be up-and-running within the next 45 days.

“We will do pipeline deals in both equity and debt, but we are really planning on concentrating on traditional private placements since [this type of deal] is integral to any investment business,” he said.

This is not the first time that modems and monitors have reared their plastic heads into the private placement market. On the equity side, garage.com, Venture Capital Online, Offroad Capital and Wit Capital, to name a few, have all begun holding early-stage offerings online. Additionally, companies like Intralinks have played significant roles as intermediaries in successful debt offerings like the $150 million transaction for Canada’s Newbridge Networks. Also, a remarkable amount of legal paperwork is currently transmitted via e-mail.

E*Offering will not spend its time acting as a distribution facilitator for established sell-side players. Rather, the system will inform its internal stable of accredited investors when deals are being agented and underwritten by E*Offering itself.

Violich said that E*Offering already has a sizable cache of legitimate buy-side clients who will be issued passwords and given other security clearances so as to minimize the omnipresent computer hackers. When pressed about security, he went on to say that the new operation will also “look forward to forging partnerships that can bring value to both of our constituencies – the companies and the investors.”

One such company may well be Intralinks itself. That company’s chief executive, Mark Adams, confirms that “we’ve been in discussions with E*Offering for a couple of months.”

Some market players have theorized that perhaps this is the future of the private placement business just as it is proving to be the present of the public stock business. One intrigued investor agreed. “[E*Trade’s] got a pretty successful track record,” he said. “If they pull this off they could really revolutionize the [private placement] marketplace.”

Not all investors, though, are as optimistic about E*Offering’s chances at making a substantial splash. “Online stuff doesn’t seem to be too well accepted right now,” said one buy-side source. “The traditional private market is just that: a traditional market that doesn’t lend itself to a non-traditional approach.” Another investor agreed by arguing that “[E*Offering] is trying to streamline a process that doesn’t need streamlining.”

While the root of these concerns might have a tinge of technophobia to them, the real concern seems to be the absence of traditional agents in the E*Offering mix. As the head of a large private placement group explained, “We personalize service… there’s a lot more to private placement offerings than just books.”

E*Offering’s Violich conceded that such hesitations are “legitimate concerns that we are going to address.” However, he stressed that neither potential issuers nor investors should get the idea that E*Offering is intended to be a completely electronic experience that will remove the all-important personal touch.

“We anticipate having human interaction widely available to institutional investors and in most cases will be conducting a roadshow and hosting investors at the company’s facility.” Violich added that he has a private placement team with “significant experience relating to institutional investors and these professionals will continue to leverage their networks.”