Investment Dealers' Digest
Executives at the new Chicago Corp. see a sweet spot in the M&A advisory market: middle-market firms in the Midwest
By Ken Tarbous
April 16, 2010
Investment bankers have brought Chicago Corp. back to life in response to forecasts that the Midwest in general, and the Windy City in particular, will be a good source of deals involving middle-market companies.
The original Chicago Corp., which took Waste Management public, was co-founded in 1965 by Bob Podesta, who left four years later to become assistant secretary of the Commerce Department in the Nixon administration.
Now the new version’s employees, including veterans of the old Chicago Corp., plan to build a full-service investment bank with research, sales and trading to serve institutional investors. They say they can establish a foothold in the market for advising companies worth $100 million or less, because dealmakers at many large firms do not focus on middle-market businesses. They are using their Chicago address as a selling point for clients in the Midwest.
It operated for just over three decades and underwrote municipal bonds, corporate bonds and initial public offerings until ABN Amro bought it in 1997. The Dutch banking giant moved the firm to New York soon afterward. A year after the purchase, ABN Amro abandoned the Chicago Corp. name. The new version was started in February.
Last year dealmakers completed 260 mergers and acquisitions worth $56.5 billion involving middle-market companies in the United States.
“What … was really going to be an important need that had to be filled was providing the kind of advice that those companies are entitled to that they can’t get simply because of their size,” said Fred Floberg, a managing director and co-founder of the new Chicago Corp.
Brent Gledhill, global head of corporate finance at William Blair & Co., advises on the sales and purchases of middle-market and large-cap companies. “On the M&A front, the sub-$50 million deal value world is probably underbanked as a sector,” he said. “There is a very under served niche of smaller companies that exist across the U.S., not just the Midwest, that will support the new firms and small boutiques.”
The market that has caught the attention of Chicago Corp., William Blair, Robert W. Baird & Co., Brown Gibbons Lang, Houlihan Lokey and Greenhill & Co. and other firms is known as the Big Ten — a reference to the athletic conference based there — includes Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, Pennsylvania and Wisconsin. Dealmakers say these states are rich with small-cap companies, many family-owned, in a broad range of industries such manufacturing, health care, business services, financial services, transportation and warehousing.
“What marks this economy is its diversity. There are great universities that feed in entrepreneurial ideas: University of Chicago, Northwestern-Kellogg and DePaul and IIT [the Illinois Institute of Technology], which is strong in terms of business incubation,” said John Challenger, chief executive of Chicago placement consulting firm Challenger, Gray & Christmas Inc.
The new Chicago Corp. has 12 senior advisers and nine managing directors, including Phil Clarke III, the son of one of the original firm’s founders. It said it plans more hiring; last month it landed its first sell-side assignment and brought on its first financial consulting client. (The firm would not identify either client.)
Chicago Corp. will also offer M&A and restructuring advice. It will focus on public and private companies in industries like distribution and manufacturing, health care, technology, energy, environmental science and financial services.
Before resuscitating Chicago Corp., Clarke, Floberg, Stanley Cutter, Robert Gold, Rick Heyke, Bill Lear and Mike Zook were managing directors at Focus LLC, a Chicago firm specializing in financial consulting and M&A advisory services for middle-market companies. The executives said they got the idea of reviving Chicago Corp. while they were at Focus.
Clarke said the idea of bringing back Chicago Corp. produced a wave of nostalgia; dealmakers from the first version had stayed in touch after ABN Amro shuttered it, and they had at least one reunion.
Chicago Corp. is also drawing executives from elsewhere, including Thomas Denison, the founder and president of Denison Partners LLC, a provider of corporate finance advice to middle-market businesses, and Keith Walz, who was previously managing partner of Kinsale Capital Partners, a private-equity firm focused on middle-market companies.
In its original form, The Chicago Corp. raised money through sales of debt and equity for public and private companies and municipal governments.
The bank completed the sale of $10 million of subordinated debt for Sun Electric Corp. and placed 100,000 shares of common stock at $48.75 for multi-industry manufacturer Textron Corp., among its assignments in the 1960s.
John Guequierre, CEO of the modular home manufacturer Pleasant Street Homes LLC, remembers the original Chicago Corp. well and says the latest version will be well received. In the 1990s, when he was the president of another modular home company, Schult Homes Corp., Guequierre hired Chicago Corp. to help him raise money through a secondary offering. That was the first of several assignments he gave Chicago Corp.
“We were not a large company and would have been a mismatch for one of the large investment banking houses,” Guequierre said. “They have an expertise in a whole range of mid-market transactions, and they’ve got a really good understanding of the kind of business environment that those of us in midsize businesses have. There is an important market for that kind of service.”
