Digital Competition – Tom Bevilacqua

“I walk into a deal with the mind-set that it’s about the people, not the technology.”

Tom Bevilacqua does deals. Big deals. And he does them fast — perhaps faster than anyone else in the fast-paced world of Silicon Valley. How fast? As executive vice president of corporate development and strategic investments for E*Trade Group Inc., an online brokerage firm, Bevilacqua led negotiations last spring to buy Telebanc Financial Corp., the leading Internet bank, for shares worth $1.8 billion. It was the biggest deal in E*Trade history. And Bevilacqua did it in just seven days.


How does Bevilacqua (who is labeled, on the E*Trade Web site, as the company’s “Deal Guy Par Excellence”) make so many big deals so quickly? He doesn’t do it by cutting corners on due diligence or by using some fancy algorithm to determine if a company fits the E*Trade mold. Instead, he focuses on the one factor that he believes is the key to any successful Web deal: the human factor. “I walk into a deal with the mind-set that it’s about the people, not the technology,” he explains. “Do they think that they’re trying to change the world, or are they just waiting for their options to vest?”

To be sure, he and his team of lawyers, investment bankers, accountants, and E*Trade executives give every company a tough going-over — but only after Bevilacqua has developed a strong sense of the people and the culture he’s going to invest in. “Don’t treat an acquisition or a strategic investment like it’s just a deal,” he urges his colleagues. “Don’t treat it like you’re trying to get this deal done so that you can move on to the next one. Treat it as if you’re trying to understand the people and the culture. If a business model and a market opportunity both make sense, then the transaction will make sense — if the cultures are going to jive.”

So far, E*Trade’s acquisitions and strategic investments have jumped, jived, and wailed. With outfits that E*Trade has acquired outright, such as OptionsLink, Share Data, and ClearStation, the process has gone smoothly. The same can be said of its strategic investments — from technology vendors such as Digital Island and Critical Path Inc., to financial plays such as and E*Offering, to e-commerce companies such as Webvan Group Inc. (a grocery company) and (an online pharmacy).

Why would E*Trade want a stake in an online pharmacy? Putting aside the eye-popping short-term returns, it’s all part of Bevilacqua’s people-centric philosophy. “What we’re doing on the strategic-investing side is absolutely critical in terms of getting market information and being state-of-the-art,” he says. “You can’t do all of this stuff yourself. You have to partner. You invest in the companies and make them strong. And that makes you stronger.”

Bevilacqua only joined E*Trade in March 1999, a few weeks after CEO Christos Cotsakos, 51, made him an offer that he couldn’t refuse while the two were attending the Super Bowl in Miami. But as the company’s outside counsel (he was with the firm of Brobeck, Phleger & Harrison LLP), and as a member of the board of directors at E*Trade Online Ventures, Bevilacqua has been intimately involved with all of E*Trade’s acquisitions and strategic investments since March 1996 — months before it went public that August. Since its IPO, E*Trade has become one of the most successful ventures in the short history of the Web. Its revenues have gone from $62 million in 1996 to more than $500 million today. Its customer base surpassed the 1 million mark in April 1999, and its customers’ assets are worth a whopping $26 billion. The firm’s market value, even after a recent slide in prices for Internet stocks, is more than $5 billion.

Bevilacqua has played a lead role in E*Trade’s fast and furious growth. And he thinks he’s got a great deal going: “The beauty of what I’m doing is that the financial-services world is about as old, antiquated, and dinosaurlike as you’re going to find. There’s a huge opportunity to change the way that things are done.” It’s Bevilacqua’s job to size up those opportunities and take advantage of the ones that make the most sense. Fast. “The segments that we operate in change so quickly that time to market is critical,” he says. “A few weeks one way or another may not seem like a big deal, but in the environment that we work in, those weeks can be a very big deal.”


It’s 5 PM on a Friday, as Bevilacqua slides into a booth at Palo Alto’s Fuki Sushi restaurant. He’s everything you’d least expect from one of Silicon Valley’s fastest-moving deal makers. He doesn’t come off like a hotshot. He has the quiet, confident demeanor of a Little League coach whose team has had a good year. Nor is he a fast talker; he’s soft-spoken, deliberate, and direct. In his denim shirt and khaki pants, he looks more like an engineer than a finance whiz.

To provide some insight into how he makes big deals fast, he agreed to provide a blow-by-blow account of his biggest acquisition to date. What better way to learn the new art of the deal than to take an art-appreciation lesson taught by a master? Here, then, is an account of the E*Trade-Telebanc combination.

The Run-Up

E*Trade had known that it wanted to be in the banking business as well as the brokerage business. The question was how. Buy an old-line brick-and-mortar bank and take it onto the Web? Acquire a Web bank and mold its culture to that of E*Trade? Bootstrap its own operation from scratch?

Telebanc, based in Arlington, Virginia, had been on E*Trade’s radar screen for some time thanks to Bevilacqua and his team, which had been tracking the firm’s performance as part of its ongoing market surveillance. “It’s one of the things that we do,” Bevilacqua explains. “We survey the various industry segments that might be attractive to us — to see who the players are, who’s coming up, and what trends are emerging.”

E*Trade had been involved in loose discussions with Telebanc about potential product arrangements, and E*Trade’s people had come away from those meetings impressed. Eventually, those talks evolved into more serious discussions about a potential acquisition. In late May, a phone call between E*Trade president and COO Kathy Levinson, 44, and Telebanc cofounder and CEO Mitch Caplan, 42, set the stage for a face-to-face meeting in California.

Day One

The meeting was scheduled for 7 PM at Fuki Sushi, but Bevilacqua wanted to get things rolling early. He invited Caplan and the other two members of his team, cofounder David Smilow, 37, and in-house counsel Arlen Gelbard, 42, for a late-afternoon beer at Il Fornaio in Palo Alto. “We got to know one another, and immediately it was clear that these were no-bullshit sort of guys,” Bevilacqua recalls. “Within 15 minutes, we were talking about a potential deal.”


Bevilacqua liked the directness of the Telebanc executives and returned the favor by putting E*Trade’s cards on the table. “I made it clear to them that we were going to be in the banking business one way or another,” he says. “But I also said that we would like to cut a deal with them as soon as possible — potentially that evening.”

When it was time to head over to Fuki Sushi, Bevilacqua offered Caplan a lift. Thanks to a major traffic jam, the two had another long chat. “It was clear that he and his team thought much the same way that we think at E*Trade,” Bevilacqua says. “They had the same type of aggressiveness — just getting down to business and doing things as quickly and as practically as possible.”

When they arrived at Fuki Sushi, Cotsakos and Levinson were waiting in one of the private tatami rooms at the back of the restaurant. Over the course of an elaborate sushi dinner, the two sides worked out the terms of the deal. Surprisingly, a valuation was never mentioned. What was discussed was how the deal would move forward and how the two companies would be put together. “It wasn’t one of these things where we were all marketing to one another,” Bevilacqua says. “This was an honest, frank brainstorming session about the areas where the two firms could excel together.”

Then the group decided to set a timeline for the deal. Cotsakos said that he thought a reasonable target was one week for completing the acquisition. “Everybody looked at each other and thought, ‘Yeah, well, that’s awfully aggressive,’ ” Bevilacqua says with a laugh. The next step was figuring out how to pull it off. “What we said was, ‘We’re going to pursue it night and day. We’re not going to do the transaction in some traditional, prolonged way, letting the investment bankers drive the process. We’re going to take control of it, do it together, and set a very aggressive timeline.’ “

The only remaining item of business was to come up with a code name for the deal. A few ideas were tossed around, but it was Levinson’s that stuck. Given the surroundings, everyone agreed that it was a great name: Project Blowfish was officially underway.

Day Two

At 8 AM the next day, the team from Telebanc and a larger team from E*Trade (which Bevilacqua had put together over the phone after the Fuki Sushi meeting) met in a conference room at R.R. Donnelly Financial Printing Co. in Palo Alto. Donnelly had done the financial printing for both E*Trade’s initial public offering and its secondary public offering. Bevilacqua chose the venue because he knew that it would be both secure and discrete. “We were going to extra lengths to make sure that this transaction was kept confidential,” says Bevilacqua, who had been asked by Cotsakos to lead the project for E*Trade.


The first action item was formalizing the roles of the E*Trade team. Bevilacqua had called in a dozen key players, including E*Trade personnel, outside lawyers, and investment bankers. “We laid out who would be responsible for what level of due diligence,” he says. “Basically, we were going over the questions that we wanted answered and developing an outline for our investigation of the Telebanc business.”

The next step involved logistics. Both the Telebanc members and the E*Trade team had to get to Washington, DC, where the rest of the negotiations would take place. Absolute confidentiality was of the utmost concern. That applied not only to the meeting site (the Washington offices of Brobeck, Phleger & Harrison) but also to the travel arrangements themselves. Team members were told to depart on staggered flights throughout the evening, so that there would be no chance of a large group of E*Traders being seen together.

“I want this operation run with military precision,” Cotsakos told the group. “And that,” explains Bevilacqua, “is really how we approached the whole thing.”

Day Three

By the next morning, Project Blowfish had relocated to Washington, DC. Bevilacqua’s idea was to start at the highest level and then drill down. So the first item on the agenda was to have Caplan give a detailed overview of the company: a narrative of Telebanc’s founding, its early days, its strategy for the future, products that it was developing that were unknown to outsiders. Everyone on the E*Trade side — from it to HR to finance — attended the meeting. “That was helpful,” says Bevilacqua. “You had people with different skills hearing the big picture: Why we are doing this. Why this makes sense. And not hearing it from us, but from Telebanc people who explained what Telebanc is all about, why it is what it is, and why it’s the leading Internet bank.”

But the overview was only the beginning. Representatives from different disciplines within Telebanc made presentations to the whole E*Trade team, on everything from HR practices to marketing strategies to risk management and asset origination. Although it may seem strange to force an investment banker to sit through an HR presentation, Bevilacqua believes in the process. “One of the best ways to ensure the integration of two companies is to make sure that the executive team of the company that’s doing the acquiring has completely bought into the vision for the acquisition,” he says. “That way, they’re clear on why you’re doing it, who you’re doing it with, and what the plan is for the future.”

At 9 PM that night, a full 12 hours after the meeting began, the presentations ended. But instead of retreating to their hotel rooms, mixed groups of E*Traders and Telebancers headed out for late dinners. At around midnight, Bevilacqua got back to his hotel, where he spent two more hours making calls and answering email.


Day Four

If the previous day was all about the big picture, this day was about delving into the details. From 8 AM onward, many of the same Telebanc officials who had presented earlier trekked back to the Brobeck offices with information and documentation that they had gathered overnight to respond to E*Trade’s detailed questions. This time, the presentations were done on a specialist-to-specialist basis.

Meanwhile, Telebanc was getting a sense of how fast Bevilacqua and his crew could move. Bevilacqua and his team of outside lawyers and accountants had finished a draft of the merger agreement and related documents. That morning, he presented the documentation to Telebanc, which spent the rest of the day reviewing it.

After a long day of doing due diligence, the E*Trade team got together for a session of brainstorming, data sharing, and discussion. That’s when Bevilacqua’s idea of exposing all of Telebanc’s business to the entire E*Trade team really began to pay off. “These were very open discussions,” he says. “I encouraged people from the finance side to put questions to our technology people, so that all of the cross-disciplines could sort of dig in together.”

Day Five

Make-or-break day. Bevilacqua woke up thinking that if they didn’t put a valuation on the deal today, there was no hope of meeting the one-week deadline. By midafternoon, word came in that Telebanc was amenable to the broad terms of the merger agreement. Prior to this, all discussions of valuation had taken place between E*Trade’s investment bankers, BancBoston’s Robertson Stephens, and Telebanc’s team from Goldman Sachs.

The process began with phone calls between the principals. The first was from Bevilacqua to Caplan. A few hours later, discussions concluded with a conversation between Cotsakos and Caplan. A price was agreed upon — 2.1 million E*Trade shares, worth some $1.8 billion at the time.

Now that the deal had achieved critical mass, many of Bevilacqua’s team members left for home that evening. With the exception of the marketing and PR people, most of the people who stayed behind were lawyers who began negotiating the terms of the deal. At dinner, Bevilacqua ate with members of the Telebanc team. Then it was back to more negotiations. Then another midnight conference call to the West Coast. And bed, once again, by 2 AM or 3 AM.


Days Six and Seven

The negotiations went on until late afternoon both Saturday and Sunday. With the lawyers deadlocked on the final outstanding issues, it was time for Bevilacqua and Caplan to come in and finish the deal. “Telebanc’s CEO and I went into a room, sat down, went through the issues, and resolved each of them in a way that was reasonable and fair to both our shareholders and Telebanc’s shareholders,” Bevilacqua says. “That told me a lot about him in that he was able to sit down and make intelligent decisions quickly, on the spot, and without an army of advisers. It was a very practical approach, and we wound up with a terrific deal.”

All that remained was to revise the final documentation. When that was done, the deal was signed by Caplan and Cotsakos, who had flown in that day from California with Levinson.

Now it was time to party. That evening, the E*Trade team went to Caplan’s home in suburban Maryland for a celebratory dinner. “It was really stupendous,” Bevilacqua recalls. “He invited everybody — the entire E*Trade team, whether you were the project manager in charge of logistics or the third lawyer working on the transaction.” One week and $1.8 billion after its inception, Project Blowfish was a done deal.

The Wrap-Up

Monday, Memorial Day, was media day. Plans were hashed out for the announcement, venues were booked for the press conference, and an overall media strategy for taking the deal public was agreed upon. Cotsakos and Caplan left for New York, where they were to unveil the deal the next day. Bevilacqua and the remaining E*Traders flew to California.

Though it would take federal regulators another four to eight months to approve the merger, the velocity of the Telebanc deal didn’t stop once the announcements were made. Instead of resting, E*Trade started laying out the plans for the full-scale integration of Telebanc. “We basically made the decision that we were going to treat the transaction as if it were closed before it was actually closed,” Bevilacqua explains. “Part of it is to get the Telebanc thinking intertwined with ours even before the combined operation starts. We’re doing that by including them in meetings, even internal staff meetings. We’re saying that we should be integrated and operating as if we are integrated — even before the deal is closed.”

Once federal regulators approve the deal, the two can move their combined products to market: “I think that you’ll see us come right out of the gate with some very powerful things,” says Bevilacqua.


Bevilacqua takes a break from finishing his story to wolf down a few pieces of sushi. Once again, he’s been forced to skip lunch. He is about to make another point when his cell-phone goes off. Instead of ringing, however, it plays the first few bars of Beethoven’s “Ode to Joy.” He listens, and then slips a hand over the mouthpiece. “Excuse me,” he says. “It’s another deal.”

Eric Ransdell (, a Fast Company contributing editor, is based in San Francisco. He’s the real deal. Contact Tom Bevilacqua by email (

Sidebar: What’s Fast

Tom Bevilacqua, executive vice president of corporate development and strategic investments at E*Trade, the high-profile online brokerage firm, understands how to do big Internet deals in superfast Internet time. Here is his deal memo on the process.

The better you know the people, the faster you can negotiate the terms.

“I’m really interested in hearing how people describe their jobs,” he says, “like how they feel about where they work, and how they see their mission there.”

Don’t talk price until you settle on strategy.


Amazingly, the senior executives from both E*Trade and Telebanc waited until the final moments of the elaborate deal-making process to get serious about the issue of price. Most of their discussions centered on business models, strategic plans, and shared skills. Price only became relevant after the two companies felt comfortable about strategy.

Investment bankers are supposed to serve you, not the other way around.

“In many transactions,” says Bevilacqua, “the investment bankers lead the process, set the agenda, establish the time frames, do things their way. In the Telebanc case, we were the ones who said, ‘We’re going to get this transaction done in a week. We’re going to get through the due diligence. We’re going to have all of the meetings with Telebanc’s management team and start to pursue immediate areas of synergy.’ “

Don’t just negotiate fast — integrate fast.

E*Trade and Telebanc chose not to wait for final approval before laying plans to integrate their operations. They assumed that their deal was a done deal, and behaved accordingly. “For my group,” says Bevilacqua, “when we have internal staff meetings, we include people from the Telebanc offices in Virginia.”