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March 1, 1998

Does Silicon Valley Rule?

By Stephen Lacey

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  • Does Silicon Valley Rule?

Silicon Alley, the fabled stretch of downtown Manhattan where New York's high-technology hopes merge with the labor of budding, young computer whizzes, is no Silicon Valley.

Truth is that Silicon Valley, the sun-dappled Santa Clara home to the greatest concentration of more technology whizzes, easily beats Silicon Alley in initial public offerings.

But as IPO volume soared to near-record levels last year, areas sprouting high-technology development may challenge both Silicons. Still, that could be many years hence.

"California's Silicon Valley is still the biggest area for new technology development," said Joe Hammer, director of equity syndicate operations at Boston-based Adams, Harkness & Hill.

However, he added, times are changing. "California and even Massachusetts don't have the lock on technological development that they used to," he said.

Indeed, though California remained the nation's undisputed leader in IPO issuance last year, its slippage as a technological mecca is confirmed by figures from Securities Data Co.

After accounting for 14.5 percent of overall IPO volume, or $7.27 billion in deals in 1996, California-based companies tapping the public market slipped by 25.75 percent to $5.47 billion last year. In absolute terms, the year-over-year shortfall was surpassed only by companies originating in Texas, where issuance fell by $2.87 billion, or 48.29 percent, to $3.07 billion.

While some pundits in Silicon Alley would claim the mantle Silicon Valley of the East, Virginia-based investment banks may think otherwise. The banks, in fact, are gearing up to meet the financing needs of companies, many of them high-technology outfits within Washington's Beltway.

"We're trying to take advantage of what's going on in the area," said James Tyler, managing director of equity syndicate at Richmond-based Scott & Stringfellow. "There's a lot of telecommunications and technology companies along the Beltway surrounding Washington."

Amid the massive cutbacks in the military, companies within that region have had to reinvent their business models around real-world applications, Tyler noted.

On the heels of the Old Dominion State's mainstream-oriented transactions last year, the debuts of several successful technology-focused companies portends a strong new issues pipeline from the state. (Last year's mainstream crop included a Morgan Stanley, Dean Witter, Discover & Co.-led offering, CarMax Group (NYSE:KMX) in February, and a Goldman Sachs & Co.-led offering from AMF Bowling (NYSE:PIN) in November.

The 1997 Virginia class of technology offerings included:

* Template Software (Nasdaq:TMPL), a provider of pre-written software templates designed to reduce the time necessary to write new applications. The Dulles-based company priced 2.1 million shares at $16 a share through a syndicate headed by San Francisco-based Volpe Brown Whelan last January.

* Maximus (NYSE:MMS), an outsourcer of health and human services. The company debuted through New York-based Donaldson, Lufkin & Jenrette last June at $16 a share.

* Hagler Bailly (Nasdaq:HBIX), an Arlington-based consultant to the private and public sectors of the energy, utility and environmental industries. Last July, Hagler Bailly placed 3.15 million shares at $14 each, also through a DLJ-led syndicate.

* Network Solutions (Nasdaq:NSOL), a leading provider of Internet-domain registration services. In September, the Herndon-based company priced 3.3 million shares through a syndicate headed by San Francisco's Hambrecht & Quist at $18 a share.