Seven Investment Bankers Every Director Should Know
from
March/April 2007
by Craig Mellow
ANITA ANTENUCCI, 36
Head of the Aerospace-Defense-Government and Transportation & Logistics Groups
Houlihan Lokey
Being an investment banker focused on the aerospace and defense industries involves unique challenges, such as occasionally selling a company without being allowed to know exactly what it does. “In some cases, no one in my group has the clearances to access information about our clients’ activities that is restricted on a need-to-know basis,” says rainmaker Anita Antenucci, who works out of the Los Angeles firm’s Washington, D.C., office. “But the acquirers do, so we can sell the companies anyway.”
Antenucci’s group advised on 19 mergers and acquisitions that closed last year, turning Houlihan Lokey, a midsize investment bank, into a heavy hitter in her chosen sectors. The biggest deal was California-based electrical equipment manufacturer Deutsch Connectors’ $1.1 billion sale to French private equity fund Wendel Investissement. More typical in size was the $144 million sale of Firearms Training Systems, a Georgia company whose virtual combat simulators are helping to drill Iraq’s new army, to Britain’s Meggitt PLC, a miniconglomerate that provides military goods and services. “The largest defense and aerospace companies have already been through extensive consolidation and gotten enormous,” Antenucci says. “Our strategy is to really understand the middle market, where all the activity is now.”
Fittingly, the Beltway financier started life as a policy wonk, a graduate student at Johns Hopkins’s School of Advanced International Studies. In 1993 she joined the newly formed Quarterdeck Investment Partners, an investment bank specializing in defense companies. She moved to Houlihan Lokey in 2002, and built her practice there virtually from scratch.
While her livelihood has plainly benefited from six straight years of rising military budgets under President Bush, Antenucci claims to be unfazed by the Democrats’ recapture of Congress. “I don’t think either party can take much of a different position on national security,” she says. “It’s a dangerous world out there.” Just in case, though, her 2007 goal for her banking team is more deals in the transportation sector.
Antenucci, the only woman on our hot-bankers list, is less optimistic on the prospects for gender integration in the financial world’s upper strata. “It takes a fair amount of ego to be successful as an investment banker, and that,” she quips, “is something men seem to have greater reserves of.”
ROB ENGEL, 43
Managing Director and Head of the Mergers and Acquisitions Group
Wachovia Securities
Rob Engel spent 15 years as a Wall Street insider at Gleacher Partners, a mergers-and-acquisitions boutique founded by Morgan Stanley rainmakers in 1990. In 2005 he changed course, moving to Charlotte, North Carolina, to oversee a staff of 80 as director of M&A for commercial-banking powerhouse Wachovia. Why? “I wanted to be part of the last major investment bank that will be built,” he says.
That’s a grand boast, but Wachovia has gone at least part of the way toward justifying it. Four years ago the bank barely had a practice in M&A, a major indicator of investment-banking prowess. For the first nine months of 2006, it placed 13th in the U.S. standings, according to data miner Dealogic, as Engel’s department earned $99 million in fees.
Like other commercial banks that have branched out into investment banking—Bank of America, Chase, Citigroup—Wachovia uses what Engel describes as “its relationships, balance sheets, and creative ideas” as a wedge to win an adviser’s role on big buyouts. Wachovia sat down at the table this way on some of last year’s marquee private equity deals, including the $26.7 billion buyout of Clear Channel and the $17.4 billion sale of Albertson’s supermarkets. But those were “consortium” transactions involving a flock of financial institutions. The Wachovia boss takes greater pride in smaller operations that tapped more of his and his team’s creativity.
Engel’s favorite 2006 deal was one that didn’t happen. The Cracker Barrel restaurant chain, menaced by activist hedge-fund manager Nelson Peltz, turned to Wachovia for advice. Rather than sell the company, as Peltz wanted, Engel and his team worked with the board to launch a share buyback and dispose of its underperforming Logan’s Roadhouse subsidiary. Cracker Barrel shares rose almost 30%, and Peltz unloaded his 5% stake. Engel bested another hedge fund, Pirate Capital, on behalf of OSI Restaurants, owner of the Outback Steakhouses. OSI repelled Pirate and embraced a $3.2 billion white-knight buyout led by Bain Capital Partners and including OSI’s founders. “Everybody’s immediate reaction is just to sell the company when hedge funds start putting on pressure, but it might not be the right moment to sell,” says Engel.
Having broken into finance in the middle of the swashbuckling 1980s, he divides today’s corporate raiders into two categories. “The private equity folks, the Bains or KKRs [Kohlberg Kravis Roberts & Co.], don’t seek conflict with managements and boards these days,” he observes. “Hedge funds are a different story.”
For 2007 and beyond, Engel sees the buyout-and-restructuring bandwagon rolling into America’s industrial heartland as financial engineers find a way to “rationalize liability,” as he puts it, at wounded manufacturing giants such as auto-parts manufacturer Delphi. The software and transaction-processing industries may also be ripe for consolidation, he predicts. Wherever dealmakers’ appetite turns next, Wachovia is on a sound footing to get its share of the fees.
JEREMY FLETCHER, 52
Head of Metals and Mining
Credit Suisse
With a splash of British modesty, Jeremy Fletcher describes himself as “the banker who can bore the pants off anyone on my subject.”
Steel, Fletcher’s métier for the past dozen years at Credit Suisse, was dull enough during much of that time while prices slid toward historic lows in 2001-02 and dozens of companies filed for bankruptcy. “Metals and mining is a pretty small world, and once you build relationships it’s pretty hard to get out,” the London-based financier says, explaining why he never tried to defect to telecoms or software.
Now he’s glad he didn’t. Fletcher played a lead adviser’s role in one of the biggest and most action-packed financial deals of 2006 in any sector: Mittal Steel’s hostile takeover of No. 2, Arcelor. Management at the Luxembourg-based target tried to fend off Mittal, the top global producer, through a hasty deal with Russia’s Severstal. But Fletcher and Mittal won the day by turning directly to Arcelor shareholders and raising their bid by 10%, to $34 billion.
Fletcher’s bond with Mittal CEO Lakshmi Mittal dates from 1997, when Credit Suisse underwrote the then-obscure company’s IPO. Fletcher, who worked as an analyst before switching to investment banking in 2000, wrote a report for investors,
Arguably the Best Steel Company on the Planet
, that ran more than 100 pages.
He is working on a new relationship with the Russian steel producer Evraz Holding and its billionaire boss, Sergei Abramov. A speech by Fletcher at a 2005 Evraz management off-site in Dubai led to Credit Suisse’s steering the aggressive Russians through two foreign acquisitions last year—a $2.3 billion purchase of Oregon Steel in the U.S. and a $678 million deal for South Africa’s Highveld Steel and Vanadium.
Fletcher expects to keep up the globe-trotting over the next few years as more metals producers in the former Soviet Union and Latin America gain strength, raise capital, and consolidate. Beyond them wait Zambia and Congo, which Fletcher toured last year to leave his calling card. “The African countries were major producers even 15 years ago, and they are starting to look very interesting again,” he notes. That doesn’t sound so boring after all.
MONTE KOCH, 43
Chairman of Mergers and Acquisitions, America
Deutsche Bank
Running the M&A team in the New York City office of a German bank, Monte Koch flies to Las Vegas every week or two. Lately he has been organizing the biggest bets that town has ever seen, the stakes rising as high as $28 billion.
Koch’s personal passion has put Deutsche at the center of what he labels a transformation via leveraged buyout of the business that bankers these days politely call the gaming industry. He first rolled the dice last June, with a $4 billion take-private acquisition of Kerzner International, which operates the Atlantis resort in the Bahamas, among other properties. Deutsche was the adviser on the deal.
Koch returned to the table in October, spearheading a $28 billion bid for gambling colossus Harrah’s that looked as if it would be the fifth-largest leveraged buyout in U.S. history if the company’s board and industry regulators approved it. He followed up in December with an $8.4 billion offer for Vegas-based Station Casinos.
Koch hopes the string of mega-deals will help Deutsche, a banking superpower in Europe, finally punch its weight in the U.S. The Germans spent $10 billion to buy New York’s Bankers Trust Corp., Koch’s alma mater, with spectacular bad timing in 1999, and have struggled since to get out of the second tier on American soil. Koch says that Deutsche now ranks 11th in the M&A league tables. “When I first joined Deutsche Bank, it was a very difficult business card to explain,” he recalls. “Now it’s a story most people know.”
Koch dates his own fascination with the real estate, gaming, and lodging business to the late 1980s, when he was an associate at Lehman Brothers and Baron Hilton came in to study a possible sale of the hotel and gaming chain he had just inherited. (Hilton opted to keep it, to Paris Hilton’s ongoing benefit.) Koch met the Harrah’s management in 1991 as a deputy at the Wall Street boutique Wolfensohn & Co., and guided the company through the string of acquisitions that made it an industry luminary. Now the Darwinian logic of money has him playing on the raiders’ side. “These bids are being driven by a recognition of the quality of cash flows in the gaming business,” he says. “Any stigma attached to this business is long gone.”
More multibillion-dollar buyout offers may be in the offing, promises Koch. “I have a list,” he says. “I sleep with it under my pillow.”
Craig McMahen, 40
Managing Director
Keefe Bruyette & Woods
In the age of globalization, Craig McMahen proves the virtues of staying at home. He does two things, and he does them both mighty well: Either he sells banks in Texas, 20 of them over the years, or he rides to the rescue of their brethren that don’t want to be sold, taking care of such business as raising capital, arranging IPOs, and putting together follow-on offerings.
McMahen was born to his job. The son of a now-retired Houston commercial banker turned cattle rancher, he lucked into covering his home state for Keefe Bruyette & Woods, a New York City-based investment banking boutique that services only the financial sector, at age 22, fresh out of Texas A&M. Nearly 18 years later, he finds himself in a near-perfect climate for dealmaking.
Texas, whose economy is larger than most countries’, is burgeoning, fed by good times in all three of its key industries: oil, technology, and defense contracting. That spells growth for dozens of local banks across the state. Their robustness makes them tempting targets for bigger institutions in slower-growing surrounding regions from Alabama to Oklahoma.
The native-son banker seized on this demand last April, selling Republic Bancshares of Texas, headquartered in Houston, to Trustmark Corp. in Jackson, Mississippi, for $210 million—an unheard-of five times tangible book value versus a national-average multiple of two to three. “That kind of snapped people’s heads back a bit,” McMahen says.
He followed up in August with his second-biggest deal to date and the farthest-reaching one geographically, brokering the $2.2 billion sale of Texas Regional Bank, based in the South Texas town of McAllen, to Spain’s Banco Bilbao Vizcaya Argentaria. The Spaniards, with an extensive franchise across the border in Mexico, leaped at the chance to grab the target’s mostly Hispanic customers and expand their presence into the large growth markets of Houston and Dallas.
McMahen claims his deal gusher isn’t dry yet. Texas is a big place, with lots of banks left to financially engineer. “There are over 30 banks in Texas with assets of $1 billion or more,” he notes. “There’s a lot more for me to do.”
MICHAEL MONTGOMERY, 52
President and Head of Media Banking
Montgomery & Co.
In 1999 Michael Montgomery left a steady job as chief executive of Sega GameWorks, a three-way joint venture between DreamWorks, Universal Studios, and Japan’s Sega, to join the high-tech-focused investment bank his younger brother James had started in the 1980s. He was soon kicking himself for the decision. “‘Did I blow it?’ How many times a day did I ask myself that question?” he says, speaking from his home base in Santa Monica, California.
But Montgomery—whose corporate credentials also include senior financial jobs at DreamWorks and Walt Disney Co., including a stint as CFO of EuroDisney—began to notice an encouraging trend: The leading specialist banks that had underwritten the late-’90s craze for technology stocks were either going out of business or joining up with Wall Street giants. Robertson Stephens shuttered in 2002, for example; Donaldson Lufkin & Jenrette is now part of Credit Suisse; and Hambrecht & Quist was subsumed by Chase. That left a niche for a boutique that could finance and sell a new generation of start-ups gestating under Internet-generation kids half Montgomery’s age.
By 2004 this niche was starting to look like a business again. By late 2005 it was starting to look like a hot business when Montgomery & Co. emerged as adviser to MySpace, the youth-oriented super-chat site that Rupert Murdoch’s News Corp. bought for $650 million.
Montgomery pushed the talks between MySpace and Murdoch to fruition within three weeks, he says. But he’d spent a lot longer building the foundations of the coup. He’d nurtured his relationship with Richard Rosenblatt, at the time CEO of Intermix Media, MySpace’s parent company. That spanned a bleak patch starting in April 2005, when Intermix was sued by New York State attorney general Eliot Spitzer for distributing spyware. (Intermix settled, for a $7.5 million fine.) Meanwhile, Montgomery helped sell other Web start-ups to eBay, Viacom, and Yahoo, establishing himself as one of the go-to brokers for new new media.
His firm closed 30 more transactions in 2006, mostly underwritings and mergers in the sub-$250 million range for companies the general public has never heard of—yet. One success story is DivX Inc., a San Diego-based maker of software that compresses video, which has increased 60% in value since it raised $167 million in a Montgomery-backed IPO in September.
“We’re focused on very early-stage companies in the high-growth sectors, not challenging the bulge bracket [big, high-profile investment banks] to service the larger companies,” Montgomery explains. Except sometimes when a very early-stage outfit bulks up fast.
THOMAS SITTEMA, 48
Managing Director in the Real Estate Investment
Banking Group
Banc of America Securities
Bank of America, the country’s biggest Main Street commercial lender, has gone aggressively Wall Street in recent years, with impressive results. Banc of America Securities came out tops in 2006 in announced real estate M&A advisory rankings, measured by both dollar volume and number of deals, according to Thomson Financial.
A big chunk of credit for this goes to Thomas Sittema, a senior banker in the real estate practice and one of those who helped launch it in 1994. While the headlines focus on fragile U.S. housing markets, prices for the commercial property that underpins publicly traded real estate companies continue to rise, making a frothy climate for financial deals.
Just one of Sittema’s mega-transactions last year was the $5.3 billion sale of CNL Retirement, an owner of assisted-living facilities for seniors, to Health Care Properties Inc. BofA advised CNL during the talks and then, once the deal was inked, went on to write bridge financing for purchaser HCPI—a virtuoso display of what bankers call leveraging the balance sheet. As a follow-up, Sittema counseled Trustreet Properties, which owns sites for chain restaurants like IHOP and Burger King, on its $3 billion sale to GE Capital Solutions, a private equity fund within the great conglomerate.
Sittema has grown up with the sector he services, real estate investment trusts. “Some of the companies I’ve sold, I’ve banked them for years,” he says. He argues that REITs have made property markets less volatile because they organize themselves by asset type rather than geographical area. “You still have some companies that deal exclusively in Las Vegas apartments or Florida shopping centers,” he says. “But more typically they own doctors’ offices or rental housing all over the country, which spreads risk.”
Bankers on a roll are always full of good reasons why it will continue. But whatever the ups and downs of his industry, Sittema has carved himself a place at the center of it.
