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THE WALL STREET JOURNAL. © 1990 Dow Jones & Company, Inc THE WALL STREET JOURNAL. © 1990 Dow Jones & Company, Inc. All Rights Reserved. VOL CXXII NO. 66 WESTERN EDITION WEDNESDAY, APRIL 4, 1990 RIVERSIDE, CALIFORNIA 50 C E N T S By DAVID J. JEFFERSON originally set for $25 million, was to have been more attuned to the needs of small clients than is the Wall Street firms still generally neglect the Staff Reporter of THE WALL STREET JOURNAL co-managed by Drexel Burnham Lambert Inc. Wall Street. “The regionals are closer to the middle market. “The result is that we’ve had a Wall Street’s biggest investment bankers are But Drexel's parent, Drexel Burnham Lambert businesses that are doing the transactions, not wide-open field,” Mr. Greene says of the writhing after the collapse of junk bonds and Group Inc., filed for bankruptcy-law protection only geographically but also in temperament,” regionals. megamergers, but many regional investment Feb. 13 and has said it plans to liquidate its says Richard Himelfarb, executive vice president firms are on a roll. And that’s good news for assets. of Legg Mason Wood Walker Inc., a Baltimore Improving Staffs entrepreneurs who rely on the regionals to “We were able to go back to the client and concern that does transactions in the $10 million arrange and finance acquisitions and other say we’d like to continue to perform on this,” to $100 million range. Moreover, as Wall Street lays off investment strategic deals. Allen Weintraub, Advest's president, says. The top people at regional firms routinely bankers in droves, many of the regional firms are Not long ago, Wall Street investment bankers “That’s proof that things can be done regionally, pay personal attention to clients. “In New York, seizing the moment to improve their own staffs. routinely sniffed at small companies; many still even when your New York partner is unable.” they’ll get a junior man working on their case,” Sutro plans to add as least seven new Doing things regionally has never been more professionals this year to its corporate-finance First of two articles on investment lucrative, many investment bankers say. Sutro’s offices in San Francisco and Los Angeles, a 50% banking for smaller companies. corporate finance activity, for example, has GO to cocktail increase. “This expansion is warranted—in fact, grown rapidly—to 19 transactions last year “I parties, and the necessitated—by the current surge in middle- do. So when Bradley S. Scott was looking to sell totaling $1.47 billion from 11 in 1987 totaling market transactions that we are experiencing,” his Los Angeles Auto Salvage Inc. last year, he $263 million. With Wall Street now averse to Wall Street guys say it’s Mr. Greif says. retained Sutro & Co., a West Coast firm. high leverage and high risk, the mergers and tough out there, and we say The firms that are doing well aren’t being “There’s a great deal of hand-holding that goes other transactions still getting done are generally bashful about it. If they seem a tad boastful these on in selling a company, and it was important to below $250 million in value. “That’s right up the it’s great,” says Lloyd Greif, days, it’s because many of them spent most of the me to have the kind of close contact that I got regionals’ alley,” Mr. Greif says. past decade watching from afar as the big firms with Sutro,” says Mr. Scott, whose company sold To be sure, not all regionals are seeing their vice chairman, Sutro & Co. feasted on the fattest deals. “The business boom for less than $20 million. business mushroom; among other reasons, some that went on on Wall Street didn’t materialize to A plethora of such small transactions is firms have strong competition in their regions, says Chris Covington, a partner of Volpe, the same degree in the regions,” says Jim Pier- adding up to real money, say regional bankers and in some parts of the country, such as the Covington & Welty, a 50-person San Francisco pont, senior vice president, corporate finance, at happily removed from Wall Street’s slump. “I go Southwest, the economy is relatively sluggish. firm. “Here, they get a senior person laboring in Minneapolis-based Dain Bosworth Inc., which to cocktail parties, and the Wall Street guys say the fields with them.” it’s tough out there, and we say it’s great,” says Nevertheless, it can take considerable had “a flurry” of new business in the first quarter. Lloyd Greif, vice chairman of Sutro. Attuned to Needs salesmanship for a regional firm to attract Despite the strong business for most regional The regional bread and butter is deals business. “Frankly, I think clients are still overly firms, many concede that the Wall Street giants between smaller companies. And with smaller “I guess it’s going to be another slow year. I in love with New York, and they don’t really could yet emerge as powerful new competitors companies thriving, many regionals’ business has don’t think we’re going to shoot the lights out,” understand why that’s not necessarily the best for regional business. never been better. Likewise, because few big says James C. Bradford Jr., senior partner of J.C. place for them to do their business,” says R. Hunt “We lost a plain-vanilla private placement to deals are getting done and so much attention is Bradford & Co., Nashville, Tenn. William Greene, managing director of Piper Jaffray Inc., a New York house just four weeks ago,” says one being focused on the smaller transactions, it’s a Blair & Co., Chicago, hasn’t seen the kind of Minneapolis. “We spend a lot of time educating executive of a Midwestern regional firm, noting seller’s market for middle-market companies, merger and acquisition activity it had before the them about our track record,” which includes that the $10 million transaction couldn’t have whose annual sales fall anywhere between $10 October 1987 stock-market crash. “It's clearly a financing work done for St. Jude Medical Inc., generated more than $60,000 in fees—small million and $300 million. Even at some regional slow period, and we hope the future is going to St. Paul, Minn., and the current sale of Deltak potatoes for a big firm. “They actually flew in firms still in the doldrums, things are looking up. be better,” says David Coolidge, partner in Corp., Minneapolis. from New York to this backwater city,” he says. Only last month, Advest Group Inc., charge of corporate finance. Wall Street’s preoccupation with huge “Since they aren’t doing the big deals, they’ve Hartford, Conn., completed a $l0 million Regionals—which normally are based well transactions has given the regionals a clear-cut got to do something.” convertible-debenture offering for O’Brien outside New York and concentrate on clients advantage in the current market, Mr. Greene Energy Systems Inc., Philadelphia. The offering, close to home—promote themselves as being says. Though trying to shore up business now, .
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