New York, NY – Last week, First Tennessee National Bank (FTNB) sold its highly respected equity research division, FTN Equity Capital Markets, to New Jersey-based asset management and merchant banking firm Point Capital Partners, LLC for an undisclosed sum. The sale, while not a complete surprise, runs counter to recent industry trends as many regional and boutique investment banks have experienced a pickup in business over the past twelve months as buy-side investors have done more equity trading business with these firms in the wake of the Lehman Brothers failure.
The Pending Deal
FTN’s equity capital markets division provides institutional equity research, investment banking, and equity brokerage capabilities, with a focus in consumer, health care, business and technology services, and the financial services sectors. The group has offices in Boston, Cleveland, New York, Los Angeles, Memphis and Nashville, and has been a division of First Tennessee for nine years.
Point Capital Partners, is a small Chatham New Jersey-based veteran‐owned asset management and merchant banking firm focused on venture capital investments in venture capital funds in the humanity, financial services, and media sectors, investments in real estate, energy and distressed assets, and a newly formed aligned wealth initiative which marries private equity incentives with public market investing. Point was founded in 2003.
The combined company will employ 130 professionals and will be the leading veteran‐owned broker‐dealer in the United States. The new firm will include a growing alternative investment platform, an established equity brokerage firm, and a highly respected equity research provider, and a boutique investment banking group. The acquisition is expected to close in the fourth quarter of 2009.
The Reason for Selling
The sale comes as FTNB’s parent, First Horizon National Corp, has been struggling to deal with losses resulting from the mortgage crisis. In July, First Horizon reported that it had lost $123 million in the second quarter of 2009 – the firm’s fifth consecutive quarterly loss.
Some analysts suggest that FTNB’s sale of its capital markets division is a result of the firm’s assessment that the equity research and trading business was unlikely to grow rapidly in the coming years due to the extreme competition in the industry which has led to consistently falling margins. However, this viewpoint seems to be at odds with data we have seen in recent months.
Contrary to Recent Trends
What is interesting about the sale of FTN’s equity capital markets business is that many regional and boutique investment banks have seen their businesses boom since the Lehman Brothers failure. A number of financial market executives have told us that over the past eighteen months, the buy-side has increased the amount of trading business directed to regional and agency brokers and boutique investment banks, and decreased the amount of business directed to bulge bracket firms.
This is consistent with recent research published by Greenwich Associates which shows that bulge bracket firms, which captured 73% of the buy-side analyst research vote in 2008, saw their market share fall to just 68.5% in 2009. This decline reversed a two-year trend where the bulge bracket had increased its share. During the same period, mid-sized broker/dealers, regional firms and sector specialists saw their market share of the buy-side research vote jump from 24% in 2008 to 29% in 2009.
Greenwich Associates consultant John Feng explains, that “based on trends we are seeing this year, it is entirely possible that the bulge bracket will continue to lose share in the buy-side analyst vote in 2009-2010 and that we will continue to see gains among mid-size, regional and specialist providers, and — to perhaps a lesser extent — among independents.”
In fact, many sell-side analysts who lost their jobs at bulge bracket firms in late 2008 due to budget cuts and layoffs have since landed either at regional broker/dealers, boutique investment banks, or they have decided to start their own independent research firms. One of the numerous new independent research firms that have set up shop in the past twelve months as a result of this trend is ConsumerEdge Research which was founded by former Morgan Stanley II ranked analyst William Pecoriello.
During the same time frame, a few of the more aggressive independent research firms like New York-based ISI have actively been trying to hire top ranked sell-side analysts away from bulge bracket firms with the expectation that buy-side analysts and PMs would trade more with them to pay for their enhanced research product.
So while we understand FTNB’s need to sell the FTN Equity Capital Markets business to Point Capital Partners due to the specific financial stress experienced by the firm in the wake of the mortgage crisis, we wonder if FTNB sold its high quality equity research and trading franchise at exactly the wrong time – right as buy-side investors are shifting their equity research consumption habits from bulge bracket firms to regional broker/dealers, sector specialists, boutique investment banks, and even some independent research providers. Fortunately for FTN Equity Capital Markets, they got the Point.
Below we have attached the full Press Release for the pending sale.
POINT CAPITAL PARTNERS TO ACQUIRE FTN EQUITY CAPITAL MARKETS; CREATES A DIVERSIFIED FINANCIAL SERVICES PARTNERSHIP
FTN Equity Capital Markets to be renamed Point Capital Markets, LLC and offer institutional equity research, investment banking, equity brokerage, capital markets origination, and alternative asset management services
CHATHAM, NJ September 30, 2009 – Point Capital Partners, LLC (“Point Capital”) today announced that it has signed a definitive purchase agreement to acquire FTN Equity Capital Markets Corp. (“FTN ECM”), an operating subsidiary of First Horizon National Corporation (NYSE:FHN). FTN ECM will be renamed Point Capital Markets, LLC (“PCM”) upon closing. Due to Point Capital’s status as a veteran‐owned business as designated by the U.S. Department of Veteran Affairs, PCM will be the leading veteran‐owned broker‐dealer in the United States.
The combination of Point Capital’s existing alternative investment platform with FTN ECM’s research, investment banking, and equity business will create a diversified financial services company poised to take advantage of the significant opportunities resulting from the historic changes within the economy and the financial services sector.
The transaction creates a complementary balance of capabilities, with elements of a partnership business model. Importantly, the management and staff of FTN ECM will have the opportunity to own founder’s interests in PCM.
William Bischoff will serve as Chief Executive Officer of Point Capital Markets. Hank Erbe, an industry veteran who served on the Board of Fox‐Pitt Kelton when acquired by JC Flowers & Co., is named President. Other senior executives include Eric Choi, Peter Costa and Tony Dwyer. The combined company will have approximately 130 employees.
The transaction is subject to regulatory approval and other customary closing conditions. Assuming these conditions are met, the transaction is expected to close in the fourth quarter of 2009.
Theodore D. Williams, Founder and Managing Partner of Point Capital, stated, “Our acquisition of FTN Equity Capital Markets creates many exciting growth opportunities through the combination of a growing alternative investment platform and an established equity brokerage firm. Their solid track record as a value‐added research provider with relationships throughout the capital markets is a great strategic fit with Point Capital. PCM will operate as an independent firm and we intend to engage in a working partnership between management and employees, consistent with our core belief in empowering entrepreneurship.”
William Bischoff, Chief Executive Officer of FTN Equity Capital Markets, stated, “This union creates a complementary balance of services and offerings for our respective client bases and allows each firm to maintain business continuity while building a new platform for growth.”
Added Richard Swift, Managing Partner of Point Capital, “As a longtime client of FTN Equity Capital Markets research, I can attest to the valuable content their product provides investment managers. We will take advantage of the corporate finance and investment opportunities that are emerging, regardless of the pace of economic recovery.”
Founded in 2003, Point Capital (www.pointcap.com) is a private, veteran‐owned asset management and merchant banking firm focused on the alternative investment marketplace. PCP’s current alternative investment portfolio includes venture capital funds in the humanity, financial services, and media sectors, investments in real estate, energy and distressed assets, and a newly formed aligned wealth initiative which marries private equity incentives with public market investing. The managing partners of Point Capital are graduates of the United States Military Academy at West Point.
FTN ECM (www.ftnequitycapital.com) is a boutique institutional equity research firm, complemented by investment banking and equity brokerage capabilities. FTN ECM’s highly experienced team of analytical experts research, examine, and evaluate businesses in several markets, including consumer, health care, business and technology services, and financial services sectors.
After closing, Point Capital Markets headquarters will remain in New York City.
Contacts for Point Capital Partners: Contacts for FTN Equity Capital Markets:
Ted Williams Richard Swift William Bischoff Hank Erbe
646‐837‐0621 646‐837‐0621 212‐418‐5029 212‐418‐5091
firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com