LARRY H. FRIEND, President, L.H. Friend, Weinress & Frankson Inc.

An investment banking firm that caters to small- and mid-size companies ought to offer the full gamut of corporate-finance services because the full-service Wall Street houses aren’t interested in handling smaller companies, says Larry H. Friend. His 7-year-old Irvine firm has worked on deals ranging from the $4-million financing for Wolfgang Puck Food Co. to the $225-million leveraged buyout of Dallas Corp. He spoke with Times staff writer James S. Granelli recently about the state of investment banking.

How has investment banking fared during the recession?

There are parts of investment banking that have been doing extremely well, such as offerings in the public market. The stock market has performed so well since the Persian Gulf crisis that many companies have now come to market with both initial public offerings and secondary offerings. They’re taking advantage of the rising prices of their securities, which helps them raise money at a lesser cost.

And is it still a good time to go to Wall Street for money?

Yes, as long as the stock market continues to stay in a bullish mode and there is a lot of investor interest and a lot of cash around, it’s a great time to continue to raise money in the public market.

What part of the investment banking business is suffering?

The part that has suffered the greatest has been the old leveraged buyouts. Drexel Burnham Lambert was very famous for doing a lot of this to provide financings to take over companies. A lot of that has fallen by the wayside because the cost of money has become too high. Mainly, the subordinated debt that was used so much to make these types of acquisitions is no longer available.

By subordinated debt, do you mean junk bonds?

Yes. Now the buyer of a company has to put up a lot more cash to do the transaction. He doesn’t have that middle piece of debt--the junk bonds--to help finance the transaction.

How do you see your role as a small investment banking firm?

We have to wear all the hats within our firm. We have to be able to counsel and advise customers on anything that they want to do, ranging from raising capital on a private basis to doing a public offering, from doing a merger or acquisition or a leveraged buyout, among other things. We have to have a knowledge of all of these areas. Now, we work very closely with a lot of big firms, especially when we feel more expertise is needed. But we have to be the general practitioner, the doctor. We have to sit down and advise them of what the problem is, what directions to take. In addition to this, we promote and sponsor companies going public. We get very involved in following companies on a research basis and very active in letting the world out there know when we’ve found an attractive situation.

Banks have been unwilling to make the kinds of loans they used to make to companies, creating a credit crunch. Has that been a boon to investment bankers?

It has hurt and it has helped. It has hurt because when you try to acquire a company and you need bank financing of some sort to do it, the banks aren’t there. They can’t supply you with what you need. The line of credit is not there or the bank is not willing to expand the line. But you’re getting helped on the other hand because now companies are forced to raise money on the public market. They now have to come to investment bankers and use other methods to raise money, such as public offerings or private placement.

That’s good news for investment bankers but bad news for the companies because they typically have to give up a stake in the company to get the money they need.

Exactly. There’s a lot more equity financing. The role we like to play is that of a partner in the company we’re helping. I like to sit on the same side of the desk as the guy running the company and help him make financial decisions on raising capital or on any type of corporate strategy. The way you sit on the same side of the desk is by taking equity positions yourself in a lot of these companies. We do it, though, on a long-term basis. We’ll sell out if we feel it should be sold, but I want to be in the same position as the president of the company. When he’s selling, I want to be selling with him.

So these are good times for investment bankers?

If a Wall Street firm has not been prospering in this environment over the last six months, then I have a feeling it made a giant mistake in something or it should not be in the business.

On the concept for financing small companies . . .

“I wanted a investment-driven firm--a think-tank to come up with our own investment ideas. Whenever you have a good idea, people will buy it.”

On gaining an edge over big firms . . .

“One of the things that a smaller firm like ours can provide are people who are available to talk with a company’s managers and who can counsel them on what they can do.”

On looking for prospects . . .

“We look for companies undiscovered by Wall Street. We’re getting ready to do the public financing for one of the most exciting little companies, the Right Stuff, the largest catalogue operation for children’s clothes.”

On the need for investment banking . . .

“I definitely think that investment banking is something that is terribly needed by many companies.”