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.”
Tuesday, May 25, 2010
IDD's 2010 "40 Under 40" - Scott Warrender
By Ken Tarbous
March 19, 2010
The lessons Scott Warrender has learned in the boxing ring have served him well in his career.
The managing director and sector head for oilfield services and downstream refining and marketing at Bank of America Merrill Lynch posted a winning record as an amateur boxer.
He once trained at the famed Gleason’s Gym in Brooklyn, and he fought in the prestigious Golden Gloves tournament.
“Investment banking, from my perspective, is very much a marathon and not a sprint,” Warrender said. “It takes significant effort over an extended
period of time, both during early career development and in building client
elationships at a senior level. That is why I think many people decide not to stick it through to the endgame.
“I think boxing was very much the same way. I saw a lot of folks who got into it, and before they possessed the requisite skills, they wanted to get into the ring to see what they could do. When the end result was inevitably bad, they quickly moved on to other pursuits.”
In late 2002, he answered the call to help B of A establish an oilfield services and refining and marketing franchise in Houston. He called on employees and resources from elsewhere in the Charlotte company to help in this effort, and he hired professionals from outside the company.
In the years it took to build the Houston operation, B of A was an unknown entity in that industry, and he and his team had to fight the notion that his company was nothing more than a lender.
In addition to the usual start-up and buildout concerns, Warrender had to form and nourish relationships in Houston’s well-established and tight-knit energy community.
When he took over the coverage of the oilfield services and refining and marketing sectors, B of A had never been the book runner for a single capital markets transaction or provided
advisory services within either sector.
Warrender and his team established a foothold in markets such as investment grade, high-yield and convertible debt, equities and IPOs. Also, the group provides M&A advice for buyers and sellers.
He gives credit to his colleagues and supervisors and says they had the patience to stand and fight to win the mandates that have helped the franchise grow.
Title: managing director, sector head for oil field services and refining and marketing
Company: Bank of America Merrill Lynch
Age: 36
Time with Company: 8 years
March 19, 2010
The lessons Scott Warrender has learned in the boxing ring have served him well in his career.
The managing director and sector head for oilfield services and downstream refining and marketing at Bank of America Merrill Lynch posted a winning record as an amateur boxer.
He once trained at the famed Gleason’s Gym in Brooklyn, and he fought in the prestigious Golden Gloves tournament.
“Investment banking, from my perspective, is very much a marathon and not a sprint,” Warrender said. “It takes significant effort over an extended
period of time, both during early career development and in building client
elationships at a senior level. That is why I think many people decide not to stick it through to the endgame.
“I think boxing was very much the same way. I saw a lot of folks who got into it, and before they possessed the requisite skills, they wanted to get into the ring to see what they could do. When the end result was inevitably bad, they quickly moved on to other pursuits.”
In late 2002, he answered the call to help B of A establish an oilfield services and refining and marketing franchise in Houston. He called on employees and resources from elsewhere in the Charlotte company to help in this effort, and he hired professionals from outside the company.
In the years it took to build the Houston operation, B of A was an unknown entity in that industry, and he and his team had to fight the notion that his company was nothing more than a lender.
In addition to the usual start-up and buildout concerns, Warrender had to form and nourish relationships in Houston’s well-established and tight-knit energy community.
When he took over the coverage of the oilfield services and refining and marketing sectors, B of A had never been the book runner for a single capital markets transaction or provided
advisory services within either sector.
Warrender and his team established a foothold in markets such as investment grade, high-yield and convertible debt, equities and IPOs. Also, the group provides M&A advice for buyers and sellers.
He gives credit to his colleagues and supervisors and says they had the patience to stand and fight to win the mandates that have helped the franchise grow.
Title: managing director, sector head for oil field services and refining and marketing
Company: Bank of America Merrill Lynch
Age: 36
Time with Company: 8 years
IDD's 2010 "40 Under 40" - Gopal Garuda
By Ken Tarbous
March 19, 2010
Gopal Garuda isn't the type of person who waits for things to happen.
In his first two months at Citadel Securities, he completed Advanced Micro Devices' $500 million high-yield bond offering and $1 billion tender offer for outstanding 5.75% convertible notes. The offerings were part of Citadel's first underwriting transaction as an investment bank.
During his studies at Harvard University, Garuda heard about the legend of Ken Griffin, the founder of Citadel Investment Group, who traded convertibles out of his dorm room during his freshman year at the school.
Garuda, 33, has known many successes as well. At Harvard, he earned two degrees — a bachelor's in economics and a master's in statistics — and wrote a widely cited Harvard International Review article on the International Monetary Fund.
He grew up in the affluent Cleveland suburbs where he watched his father run an independent financial planning practice advising high-net-worth individuals. Garuda started his Wall Street career in 1998 as an equity derivatives trader at Merrill Lynch, but in 2000 he decided to go to Silicon Valley to become a technology banker.
He quickly acclimated to the change in lifestyle and temperature (not to mention the more laid-back atmosphere) in California, where he has taken up long-distance running.
He spent 10 years at Merrill and B of A Merrill, but it didn't take any arm-twisting to get Garuda to join Citadel in September. "It was an easy decision to join Citadel Securities. I have tremendous respect and admiration for the organization. It attracts people who are smart and innovative and who know how to find opportunity in a dislocated market. We have assembled a great team from many of the most respected investment banks on Wall Street."
Title: managing director and co-head of technology investment banking
Company: Citadel Securities
Age: 33
Time with Company: 7 months
March 19, 2010
Gopal Garuda isn't the type of person who waits for things to happen.
In his first two months at Citadel Securities, he completed Advanced Micro Devices' $500 million high-yield bond offering and $1 billion tender offer for outstanding 5.75% convertible notes. The offerings were part of Citadel's first underwriting transaction as an investment bank.
During his studies at Harvard University, Garuda heard about the legend of Ken Griffin, the founder of Citadel Investment Group, who traded convertibles out of his dorm room during his freshman year at the school.
Garuda, 33, has known many successes as well. At Harvard, he earned two degrees — a bachelor's in economics and a master's in statistics — and wrote a widely cited Harvard International Review article on the International Monetary Fund.
He grew up in the affluent Cleveland suburbs where he watched his father run an independent financial planning practice advising high-net-worth individuals. Garuda started his Wall Street career in 1998 as an equity derivatives trader at Merrill Lynch, but in 2000 he decided to go to Silicon Valley to become a technology banker.
He quickly acclimated to the change in lifestyle and temperature (not to mention the more laid-back atmosphere) in California, where he has taken up long-distance running.
He spent 10 years at Merrill and B of A Merrill, but it didn't take any arm-twisting to get Garuda to join Citadel in September. "It was an easy decision to join Citadel Securities. I have tremendous respect and admiration for the organization. It attracts people who are smart and innovative and who know how to find opportunity in a dislocated market. We have assembled a great team from many of the most respected investment banks on Wall Street."
Title: managing director and co-head of technology investment banking
Company: Citadel Securities
Age: 33
Time with Company: 7 months
IDD's 2010 "40 Under 40" - Noah Bulkin
By Ken Tarbous
March 19, 2010
Noah Bulkin considered taking up law and went as far as interning at Linklaters' Brussels office before enrolling at Oxford University.
But all it took was one visit to Merrill Lynch's London office to get him hooked on investment banking. The 33-year-old Bulkin continues to make deals as head of mergers and acquisitions for EMEA real estate, gaming and leisure at Bank of America Merrill Lynch.
He was appointed to that post last year, and over the past 18 months he has been assuming more responsibility for the firm's U.K. M&A operations across all sectors, a job that has made use of his broad skill set.
Bulkin, who spent the first 11 years of his life in New York, thrives on competition and loves making deals — the more challenging and complex, the better.
He counts himself among the professionals who have made lifestyle sacrifices for his work. Bulkin spent more than a year helping Electricite de France (EDF) with its pursuit and eventual $23.2 billion acquisition of nuclear power giant British Energy and then arranged a deal to sell a minority stake in the company to Centrica plc for $3.5 billion.
The purchase of British Energy involved the U.K. government as both a shareholder and an energy policymaker. Bulkin says the cross-border transaction and its complex structure changed the way energy deals are made in Europe.
"For me, the thrill of a contested M&A situation and the ability to participate in really transforming a business ... are really the things I probably get the biggest buzz from," Bulkin said.
Title: head of real estate, gaming & lodging M&A for EMEA
Company: Bank of America Merrill Lynch
Age: 33
Time with Company: 11 years
March 19, 2010
Noah Bulkin considered taking up law and went as far as interning at Linklaters' Brussels office before enrolling at Oxford University.
But all it took was one visit to Merrill Lynch's London office to get him hooked on investment banking. The 33-year-old Bulkin continues to make deals as head of mergers and acquisitions for EMEA real estate, gaming and leisure at Bank of America Merrill Lynch.
He was appointed to that post last year, and over the past 18 months he has been assuming more responsibility for the firm's U.K. M&A operations across all sectors, a job that has made use of his broad skill set.
Bulkin, who spent the first 11 years of his life in New York, thrives on competition and loves making deals — the more challenging and complex, the better.
He counts himself among the professionals who have made lifestyle sacrifices for his work. Bulkin spent more than a year helping Electricite de France (EDF) with its pursuit and eventual $23.2 billion acquisition of nuclear power giant British Energy and then arranged a deal to sell a minority stake in the company to Centrica plc for $3.5 billion.
The purchase of British Energy involved the U.K. government as both a shareholder and an energy policymaker. Bulkin says the cross-border transaction and its complex structure changed the way energy deals are made in Europe.
"For me, the thrill of a contested M&A situation and the ability to participate in really transforming a business ... are really the things I probably get the biggest buzz from," Bulkin said.
Title: head of real estate, gaming & lodging M&A for EMEA
Company: Bank of America Merrill Lynch
Age: 33
Time with Company: 11 years
Health Care Deal of the Year: Pfizer Buys Wyeth
Pfizer and Wyeth overcame more than their fair share of challenges to bring a groundbreaking deal to fruition.
By Ken Tarbous
January 29, 2010
As it turns out, Pfizer’s $68 billion acquisition of Wyeth is the deal that almost wasn’t.
Wyeth was shy during the courtship. There was debate about the price of this mammoth transaction, and — most importantly — credit markets were chaotic when dealmakers were crafting the terms.
But when the hefty deal was unveiled in January of last year, it showed the world that Wall Street was still open for business. That earns the purchase the title of Health Care Deal of the Year.
Long before Jeffrey Kindler, the chief executive of Pfizer, met in June 2008 with his Wyeth counterpart, Bernard Poussot, each of the pharmaceutical giants had been looking at new strategies for achieving their goals.
“Pfizer went through a very thoughtful process to understand their strategic options. There was a very thoughtful front-end period, from which this transaction ultimately evolved,” says Ken Hitchner, global co-head of health care investment banking at Goldman Sachs.
Pfizer paid 66% of the price in cash and 34% in stock. Bankers say Wyeth’s top managers saw that the target’s various businesses would dovetail nicely with its own.
“Management’s bold vision not only redefined Pfizer from an operational standpoint by diversifying their presence in vaccines, biologicals, consumer health and nutrition, but also financially — from a tax standpoint, a dividend standpoint and with their shareholder base,” says Drew Burch, head of health care mergers and acquisitions at Barclays Capital.
With Goldman Sachs, Barclays, Bank of America Merrill Lynch, Citigroup and JPMorgan Chase as advisers, Pfizer diligently pursued Wyeth. However, the severe market dislocation and the Lehman Brothers bankruptcy roiled the credit markets, complicating efforts to complete the transaction.
“The thing that differentiates it is that this deal was negotiated while the financial world was falling apart,” says Paul J. Taubman, co-head of institutional securities at Morgan Stanley. “There were no clear metrics to use, since the world was changing so fast. To be able to achieve a full valuation and deal certainty and have the economics hold up so well a year after it was agreed, that’s what is so differentiating.”
Wyeth, with Morgan Stanley and Evercore Partners as advisers, was steadfast in its view that a deal would need to produce long-term value for its own shareholders.
“One of the central questions was how Pfizer would finance the purchase price. Even in good markets, a deal this size can be difficult to finance,” said Clinton Gartin, head of the health care banking at Morgan Stanley.
The behemoth deal required a $22.5 billion bridge loan and included a $4.5 billion reverse termination fee tied to Pfizer’s credit ratings. Both were salient points of the deal.
“The transaction was groundbreaking at almost every level. It was a critical strategic initiative and an important opportunity for Pfizer from an M&A and a strategic perspective. It was complex and had tremendous scale, and the financing was, in its own right, transformational by virtue of its size in the context of unprecedented market turmoil,” says Wylie Collins, a managing director in debt capital markets at Bank of America Merrill Lynch. “On all deals as complex and large as this, the M&A and financing are inextricably linked, so it is very important for all components of a transaction to work. This was even more important given the historic market environment under which the deal was consummated.”
Media Deal of the Year: Disney Buys Marvel
A marriage between the entertainment titans Disney and Marvel has proved a smash hit with the investment community.
The bankers involved in Walt Disney & Co.'s acquisition of Marvel Entertainment, the publisher of comic books featuring superheroes like Spider-Man and Iron Man, had deal books and fairness opinions with titles like "How Mickey and Spidey Got Hitched." The parties in the transaction were given character names — Disney was referred to as "Daredevil," while Marvel was called "Maverick" — and many of the young associates on the deal will probably remember this (in the words of one banker involved) as their "coolest" assignment.
But this deal was about more than the coolness factor. Disney got 5,000 or so Marvel characters, who can be brought to life on film and in theme parks. The thousands of characters involved in this purchase, including the ones in the boardroom, make this IDD's Media Deal of the Year.
Disney had had its eye on Marvel for a while, but it came as a surprise to Isaac Perlmutter, Marvel's chief executive, when Robert Iger, Disney's president and CEO (who was behind the entertainment giant's $6.3 billion purchase of Pixar in 2006), called in June to discuss a possible deal.
"Disney is a content company, a creative company — probably the best in the world — and has a strong understanding of intellectual property. Marvel also has a deep culture with a sensitivity to Hollywood interpretations, and the company's convictions about its characters and storylines are almost religion," says Jeff Kaplan, global head of M&A at Bank of America Merrill Lynch, which acted as the sole adviser to Marvel and has a longstanding relationship with its senior management.
Both Perlmutter and Marvel's board believed in the long-term value of the sale, and they wanted to retain an interest in the company and maintain some creative control over the content, so the transaction, worth $4.3 billion, was structured as a combination of stock (40%) and cash (60%). Perlmutter will oversee Marvel operations within the Disney kingdom.
"Marvel had presence in the boys space, but what it lacked was a big consumer presence," says Andy Gordon, head of global media investment banking at Goldman Sachs, which served as financial adviser to Disney. "As Marvel is at its core a content company, the deal is consistent as part of Disney's strategy to provide high-quality content. Most people felt this was a perfect combination."
Investors certainly saw the possibilities in a Marvel-Disney marriage. Disney shares closed at $26.84 on the last day of trading before the deal was announced, but at midday yesterday they were changing hands at $28.77.
Primary Dealership Just One Step for MF Global
MF Global, spun off from a hedge fund manager, has growth plans that include leveraging its status as a Treasury securities dealer.
By Ken Tarbous
January 15, 2010
MF Global aspires to be more than just a broker-dealer and clearing house. Spun off in an IPO three years ago by hedge fund manager Man Financial, the futures and options brokerage has plans to compete with Wall Street banks.
Well along in the application process to become a U.S. primary dealer, MF Global this month completed the relocation of its corporate domicile from Bermuda — a locale fraught with negative associations for many in the financial world — to Delaware. It's a move the company acknowledges was, in part, "reputational," but some market participants see an attempt to placate the Federal Reserve.
"We believe this move to Delaware will help MF in the process to become a primary dealer," Roger Freeman, an analyst at Barclays Capital, said in a report.
While foreign entities are allowed into the elite club of primary dealers that deal directly with the Fed trading in Treasury securities, Bermuda is seen as a domicile with light corporate governance and the Fed must consider its public image when it approves new primary dealers.
"The Fed is cognizant of their own reputational risk. If they allow a dealer who shouldn't become a dealer, that might have an impact on their own reputation," says a market participant involved in his bank's primary dealer operations who did not want to be named.
MF Global's quest to become a primary dealer is not a done deal, and the company declined to discuss its application.
Motivation for becoming a primary dealer goes beyond making money on Treasury transactions.
Prestige and the attendant growth in client and counterparty bases play a large role in deciding to push to become a primary dealer, and that likely has been a factor in MF Global's thinking, market participants say.
"Some institutions will only deal with primary dealers. If nothing else, they feel like the primary dealers are more scrutinized by the Fed. Whether or not that's true, it's the perception," says one market participant who declined to be named.
The New York Fed, for its part, reiterated this week that the primary-dealer designation is not an endorsement. Indeed, Lehman Brothers and Bear Stearns were primary dealers.
Meanwhile, the road to becoming a primary dealer may have gotten tougher in recent days.
The New York Fed announced this week a "more formal" set of rules and requirements for primary dealers. With these new rules primary dealer firms have to hold at least $150 million in net capital, up from $50 million.
Treasury volume is expected to be up next year as the U.S. government finances a record deficit, making the role of primary dealers all the more lucrative in that the business area can draw in new clients and help leverage relationships with existing clients, particularly in fixed income.
"When you are a primary dealer, you see some flows you wouldn't otherwise see, particularly in repos. There are certain advantages in becoming a primary dealer. That's where the moneymaking opportunity is. You can see who is buying. The flow, that's where you can take advantage of market," says a market participant who was involved in his bank's primary dealer operations and did not want to be named.
MF Global has not stood by and waited for that primary-dealer status to build up its presence in fixed income.
Since last year MF has been building its high-grade corporate and high-yield business areas as part of its expansion in the fixed income, Niamh Alexander, equity analyst Keefe, Bruyette & Woods who tracks MF Global.
Geographically, Asia remains a growth area where the brokerage has added sales and trading professionals, Alexander says. But there have been notable changes within the ranks of management and high-profile roles.
In October 2008, former Chicago Board of Trade chief executive officer Bernard Dan, who joined MF Global in June 2008 as president and North America chief operating officer, was named CEO. In April 2008, Randy MacDonald, who filled several roles at TD Ameritrade Holding from 2000-2007, joined as chief financial officer.
Robert Lyons joined in September as COO for North America after spending more than 20 years at Bear Stearns, serving as COO in the global equities division, among other roles. And in October, James O'Sullivan was hired as MF Global's chief economist, coming from a similar role at UBS.
Aside from Treasuries and corporate debt, MF Global has also stepped up its presence in the important government agency debt business.
Late last year, MF Global received accreditation as a Federal Home Loan Bank underwriter and reallowance dealer.
FHLB discount note issuance totaled nearly $1.5 trillion in 2009 and overnight issuance averaged about $23 billion per day.
Those new business relationships could be leveraged in other business areas, including what one analyst who declined to be named named says may be an expansion into investment banking at a time when the number of major Wall Street firms has been whittled down by the credit crisis.
With all the plans to grow beyond its roots, MF Global has encountered some difficulties with regulators in recent years. In December, for example, Commodity Futures Trading Commission regulators fined MF Global $10 million for risk-management practices related to a rogue futures trader's actions in 2008.
And, as is the case with any buildout on Wall Street, firms with ambitions need to spend money to attract talent. MF Global has spent more on compensation and expenses, while taking in lower revenue because of declines in futures trading volume across the industry, something that has caught the attention of rating agencies.
In November, Moody's Investor Service downgraded MF Global's outlook from stable to negative, maintaining its issuer rating at Baa2, still an investment-grade rating, according to Alexander Yavosky, vice president and senior financial institutions group analyst at Moody's.
A number of issues factor into rating agency analysts' thinking and one of them was the issue of compensation and expenses.
In addition, MF Global has a highly levered balance sheet, a way of maintaining revenue in a low interest rate environment that increases risk for creditors, Yavosky says.
MF Global is not alone in its efforts to become a primary dealer. Other firms vying for the role include Scotia Capital, Societe Generale, and TD Securities, according to market sources.
Like MF Global, these companies may be looking to use the primary dealer status as a stepping stone to becoming a full service bulge-bracket firm like Bank of America Merrill Lynch or JPMorgan Chase.
Subscribe to:
Posts (Atom)