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Uncertain economic times create merger-and-acquisition opportunities, and First National Investment Banking (FNIB) will use its new Des Moines office to pursue more of those deals in Iowa, say two of its top officers.

On June 30, FNIB opened an office on the 11th floor of the recently completed Davis Brown Tower in conjunction with its sister company, First National Bank of Omaha, which launched a retail bank branch in the lobby of the building. Both organizations are owned by First National of Nebraska Inc., currently the 46th-largest bank holding company in the United States.

“Clearly, what this (move) suggests is a fairly significant focus and attention to Des Moines and the state of Iowa,” said Paul McGarvey, FNIB’s managing director in Des Moines. “It is clearly a unique situation for Des Moines and Iowa from the standpoint that (FNIB is) a full-service investment bank. For clients and potential clients of the bank, it means you have a single institution that’s offering not only credit services but also direct equity and mezzanine investment securities along with investment banking.”

FNIB developed its Iowa ties a year ago with the purchase of Cybus Capital Markets LLC, a Des Moines-based niche investment bank that has specialized in food and agribusiness companies since the mid-1980s. Now, as FNIB, the investment bank plans to broaden its business to handle deals involving a broader range of industries, among them deals involving renewable energy, manufacturing and financial services companies.

Over the past year, the combined company has closed several major transactions, including the acquisition of Monsanto Choice Genetics Inc. by Newsham Choice Genetics, a West Des Moines-based swine genetics company, which is now the second-largest company in that industry. FNIB also handled a recapitalization and management buyout for CSS Farms, a Watertown, S.D.-based potato processing company. FNIB primarily handles M&A and capital-raising transactions for middle-market companies with annual revenues of between $20 million and $100 million.

With the merger of Cybus and FNIB, “we have the ability to conduct larger transactions, and we have the resources comparable to other investment banks, whether they’re in major metropolitan areas or (on the) East or West Coast,” said McGarvey, who was previously a Cybus partner.

FNIB also has offices in Omaha, Kansas City and Sacramento. With a total of 52 employees, the company encompasses three component businesses: First National Mergers & Acquisitions, which is the focus of the Des Moines branch; First National Capital Markets, which trades approximately $1 billion per day, primarily in fixed-income investments for institutional clients; and First Capital Partners, a $60 million fund that provides mezzanine loans and equity financing to companies.

FNIB currently has approximately $1 billion in M&A deals pending, said Clark Lauritzen, FNIB’s senior vice president and general manager, located in Omaha. “And I would certainly say that we expect to be closing in the hundreds of millions of dollars in M&A activity on an annual basis,” he said.

To the extent that FNIB is successful in closing its pending deals, it may end 2008 with eight to 10 times the dollar volume of deals it did last year, McGarvey said.

“Our pipeline of activity continues to be very robust in the food and agribusiness arena, along with renewable energy, which is primarily consolidation activity going on there,” he said. “We’re seeing some consumer and industrial manufacturing companies, at least over in the Omaha market, doing recapitalizations. Basically, those involve a change in ownership, and it allows the remaining management team to maintain day-to-day operating control of the business and also gives them liquidity out of what we call recap financing.”

The present economic uncertainty means that FNIB is communicating frequently with the dominant players within these industries, McGarvey said.

“Those dominant players are looking at one of two things: They want to add to their empire, and they need capital,” he said. “Generally, that access to capital is limited in certain respects to what’s available in the debt market. So they’re looking at what we call growth capital – bringing in a financial or strategic partner to allow them to continue to grow and support their balance sheet for future acquisitions.

“On the other side of the coin, you’ve got entities that are seeing an opportunity to exit the market. They’ve done exceedingly well, and they see an opportunity to take some money out of their businesses, either by employing a 100 percent sale of their business or doing a recapitalization.”

Lauritzen added that because FNIB is privately owned by his family, it can pursue opportunities in markets that publicly traded banks are abandoning due to weak economic conditions.

“In an environment like this, most public banks will engage in mass reductions in (work) force or exiting certain markets or industries they may have had challenges with,” he said. “Not being a public company, we don’t have to do that. We can be patient; we can be rational about this business. We tend to find opportunity in times like this that some others may not. It’s why we can continue to expand our business at a time like this in Des Moines and the greater Iowa market.

“We take the perspective that this is a cyclical industry; commodities are cyclical, we understand that,” Lauritzen said. “We’ve been lending in the hog and cattle business for years. So while the higher input costs are challenging that industry right now, we know that cycles come and go. So we’re not going to exit the agricultural lending services, nor will we exit the agricultural investment banking services. I think our clients, particularly in those industries – ag, real estate and renewable fuels – are happy we’re here.”