By Imani Moise
(Reuters) - At an event hosted by Citigroup Inc (N:C) this month, its dealmakers sat executives from major consumer-product companies alongside rivals trying to disrupt their businesses.
The idea, bankers said, was to hatch partnerships between old companies that are replete with cash and searching for growth, and fledgling companies that are gobbling up market share and need working capital.
One of the blue-chip titans that benefited from Citi's matchmaking was Kimberly Clark Corp (N:KMB). Known for selling tissues and diapers, the Irving, Texas-based company made an investment in a direct-to-consumer brand on Tuesday, inking a $25 million deal with period-proof-panty startup Thinx, the startup said.
Such tie-ups help Citigroup bankers improve relationships with large-cap clients while also building connections with privately held companies that may one day go public, said Elinor Hoover, Citigroup’s co-head of consumer investment banking.
"We do need to have our finger closely on the pulse not only because it’s important to our equity franchise, but it also is important to our mainstream bigger cap clients and our overall advisory business," Hoover said in an interview.
Hoover began organizing Citigroup’s Consumer Disruptive Growth Conference three years ago. At the time, her team did not pay much attention to emerging companies that were quickly grabbing a greater portion of revenue, as well as deal volumes.
The Sept. 11 conference attracted nearly 400 attendees, Hoover said. Among them were household names like Kimberly Clark, Hershey Co (N:HSY) and J.C. Penney Company Inc (N:JCP), and startups like beauty-products site Glossier, Swedish oat-drink maker Oatly and e-commerce merchant Brandless. There were also private-equity investors and high-net-worth clients from Citi’s private bank.
Citigroup plans to expand this strategy to other sectors, including automotive, media and healthcare, said Paul Abrahimzadeh, head of equity capital markets syndicate for the Americas. The consumer business was a natural place to start, because incumbents there have been disrupted more than in other industries.
The average time for companies to remain in the S&P 500 was 24 years in 2016, down from 33 years in 1994, according to market-research provider Innosight. The firm predicts half of the companies now in the S&P 500 will be replaced over the next decade, with the consumer-products industry facing the most upheaval.
Citigroup is not the only bank responding to the trend.
SWARMING SILICON VALLEY
Bank of America Corp (N:BAC) has expanded its team of dealmakers who cater to private companies, Chief Operating Officer Tom Montag said at a conference last week. Other Wall Street banks including Morgan Stanley (N:MS) and Goldman Sachs Group Inc (N:GS) have swarmed Silicon Valley, offering advice and capital to hot startups in hopes of winning IPOs, advising on acquisitions or performing capital raises.
Part of Citigroup’s strategy has been reorganizing staff to increase collaboration and win more business.
Roughly a year ago, its investment bank created the technology and strategy solutions team, which tries to get non-technology companies to think about digital disruption. Sean Rogers, who runs the team, spends his time pitching manufacturers, retailers and other conventional companies on deals and partnerships with startups.
Citigroup also integrated teams that focus on raising capital in public and private markets, because companies sometimes need to consider both options, Abrahimzadeh said.
Its dealmakers are also collaborating more closely with commercial bankers and wealth managers to build relationships with up-and-coming companies and put them on larger clients' radars, executives said.
Banks have little choice but to cater to companies in their near-infancy because of interest from investors and corporations, said Leon Kalvaria, chairman of Citi's institutional clients group.
"Big companies are all interested in it on a senior management and board level," he said. “