JPMorgan Chase & Co. is launching a dealmaking team aimed at small companies, targeting businesses valued between $100 million and $500 million, according to an internal memo issued Wednesday and confirmed by the bank. The move pushes the nation’s largest bank further down the market, into a segment long dominated by boutique investment banks and regional advisory firms.

The new unit, described in the memo as a small-cap investment banking group, will complement an existing mid-cap operation that handles larger transactions. John Richert, who leads the mid-cap business and serves as global head of business services investment banking, said the effort expands the firm’s ability to serve smaller companies operating in specialized industries. The mid-cap group has grown steadily over the past decade to nearly 400 bankers worldwide, generating more than $1 billion in annual revenue while expanding at a rate exceeding 20% a year.

Richert pointed to two major trends behind the decision. The first is a generational transition as thousands of companies founded by baby boomers prepare for ownership changes, creating what he expects will be a significant pipeline of business sales over the coming years. The second is the continued flow of capital into private equity firms focused on lower- and middle-market businesses, creating increased demand for acquisition opportunities. Together, those forces are expected to drive more transactions involving companies that historically have not been a primary focus for JPMorgan.

The bank said the expansion will allow it to build relationships with entrepreneurs earlier in their business lifecycle while entering a market where many of its largest Wall Street competitors have only a limited presence. Richert noted the firm’s broad capabilities, saying few financial institutions can advise on the sale of a family-owned business while also helping take a company the size of SpaceX public. JPMorgan Chase participated in SpaceX’s June initial public offering.

The small-cap investment banking team will be led by Michael Flynn, a middle-market adviser with more than two decades of experience who joined JPMorgan Chase from G2 Capital Advisors, a Boston-based boutique investment bank. He will be joined by managing director Arash Farin, whose career includes roles at Centerstone Capital, Goldman Sachs, Blackstone and Lehman Brothers, along with executive director Jamie Eastham, a longtime JPMorgan banker who most recently worked in the firm’s strategic financing solutions group. The bank plans to expand the new division to more than 75 bankers.

The group will operate from Atlanta, Chicago, Dallas, Los Angeles and New York, placing advisers closer to business owners across the country instead of concentrating operations in a single financial center. Initial industry coverage will focus on consumer and retail companies, business services and other diversified sectors.

For small and mid-sized business owners, the move could have significant implications. Selling a privately owned company is often the largest financial transaction an entrepreneur will ever complete and, for many baby boomers, represents the primary source of retirement wealth. Historically, businesses valued below $500 million have relied on boutique advisory firms for mergers and acquisitions advice. The arrival of JPMorgan Chase could increase competition, provide greater access to financing and potentially improve valuations for sellers while intensifying pressure on smaller investment banking firms that have traditionally dominated the market.

The expansion comes as JPMorgan Chase continues to rank among Wall Street’s leading dealmakers. According to Dealogic, the bank has advised on more than $500 billion in U.S. transactions so far this year, trailing only Goldman Sachs. By moving further into the small-cap market, the bank hopes to establish relationships with growing companies earlier, positioning itself to serve them as they expand into larger corporate clients.

Whether the strategy succeeds will depend on how quickly the anticipated wave of baby boomer business sales develops and whether private equity firms continue investing aggressively in smaller acquisitions. For now, the message is clear: one of the world’s largest financial institutions sees the market for selling privately owned American businesses as large enough to warrant a dedicated national investment banking platform.

JBizNews Desk | Wall Street

© JBizNews.com All Rights Reserved. Reproduction or distribution without written permission is prohibited.