'Playing Offense' - Robert W. Baird

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As some firms retreat in the face of the financial crisis, Baird successfully navigates the middle-market waters. All investment banks, no matter what their niches, are feeling the negative impact of the credit crisis. But amid all the upheaval, there are pockets of opportunity. In the case of middle-market firm Robert W. Baird & Co., the difficulties felt by bulge-bracket competitors have led to a recruitment goldmine. As Paul Purcell, Baird’s chairman, president and chief executive, frequently tells his teammates, their shop “is playing offense while everyone else is playing defense.” For example, Baird opened an office in Charlotte last month in part to tap the vast pool of middle-market banking talent from Wachovia. Baird recently hired two managing directors, Brian McDonagh and Joe Pellegrini, from Wachovia for its Charlotte branch. Baird also named McDonagh cohead of M&A. The firm had interacted with McDonagh and Pellegrini, who focus on the industrial and consumer sectors, respectively, for years before recruiting them, says Steven Booth, Baird’s director of investment banking. McDonagh and Pellegrini will be joined in the Charlotte office by another former Wachovia managing director, healthcare banker Frank Stokes, who came aboard last year. Stokes had previously been splitting time between his home in Charlotte and Baird’s office in Chicago. “It’s such an incredible recruiting environment that frankly, it’s a little overwhelming,” says Booth. “We’re perceived as a very attractive and stable destination.” Purcell agrees. “There’s an enormous amount of movement out there right now,” he says. “Goldman Sachs is laying off 10%, and the other big players are laying off more than that. This game is all about people and getting the greatest amount of talent, no matter where they’re based.” Purcell says the number of résumés received by Baird has increased by at least 50%. Adds Christopher McMahon, head of US M&A at Baird, “Every senior hire we’ve made over the last six months has had multiple opportunities in addition to Baird.” Baird focuses on four core growth industries: healthcare, technology, business services and consumer. Booth says Baird is engaged in dialogue with many healthcare and consumer bankers, and offers from Baird were recently accepted by a European services banker and a West Coast banker, though these additions have not yet been publicized. Other new bankers at Baird include Richard Conklin, a managing director in Chicago who will concentrate on expanding the firm’s operations in the industrial and real estate sectors. Conklin, who will also oversee all of Baird’s private placement activity, was formerly head of global investment management at an industrial real estate investment trust, ProLogis, and also spent seven years at William Blair & Co., where he founded and headed equity private placement operations for public companies. So far this year, Baird has added 10 senior bankers, eight of whom are managing directors. In March, Baird hired Jeff Seaman as a managing director in its financial sponsor coverage group. He was previously a senior managing director in Bear Stearns’ financial sponsor business. In December 2007, the firm hired John Moriarty, a technology banker, from A.G. Edwards & Sons to oversee its new office in Palo Alto, Calif. What’s in a name? Baird is not the new kid on the block; in fact, it’s a senior citizen. The firm was established in 1919, when Robert Wilson Baird became the lead partner at The First Wisconsin Co. in Milwaukee, the securities business of First Wisconsin National Bank. Baird, who co-founded the National Association of Securities Dealers in the 1930s and served as its third chairman, became president of First Wisconsin National Bank in the ‘20s. The entity’s name was changed to Robert W. Baird & Co. in 1948, the same year the f i r m became the first Wisconsin-based brokerage to buy a New York Stock Exchange seat. (Baird was selected as IDD’s 2006 Middle- Market Bank of the Year.) “We’re focused on middle-market M&A and eq- By Joshua Hamerman u i t y financing,” says Booth. “We’ve always been known as a middle-market M&A player and we have a leading small and mid-cap equity research and institutional franchise we’re seeking to leverage.” In addition to investment banking, Baird also has asset management, private equity and venture capital, fixed income and private wealth management operations. Baird’s private equity and venture capital business has $2.5 billion under management, its asset management division oversees $15 billion of institutional money and the firm has 58 wealth management offices in the US. As for its equity capital markets footprint, which includes investment banking, Baird is represented in Atlanta, Boston, Chicago, Frankfurt, London, Milwaukee, Nashville, Tenn., Tampa, Fla., Washington, DC, St. Louis, San Francisco, Palo Alto, Stamford, Conn., and Shanghai besides Charlotte. Purcell joined Baird in 1994 after 22 years at Kidder, Peabody & Co., where he was head of Midwestern investment banking and head of the automotive and insurance banking groups. He brought Booth
Photograph By Tim Evans Steven Booth: ‘We and other middle-market players have been holding our own relative to upper-market players.’ and Paul Carbone, now director of Baird’s private equity business, with him, and he refers to them as his “two right-hand guys.” Purcell hired Booth and Carbone at Kidder Peabody more than 20 years ago. Purcell was elected to another term on the Securities Industry and Financial Markets Association board of directors last week. “I’m a recovering investment banker by trade,” Purcell says with a laugh. “You never fully recover.” (Purcell’s brother, Philip, was chairman and CEO of Morgan Stanley from 1997 to 2005 and held the same positions at Dean Witter from 1986 to 1997.) Of Baird’s 150 bankers, 40 are based in Milwaukee and 50 work in Chicago. Baird’s Midwestern roots have come in handy for its industrial banking franchise (many industrial companies are based in Illinois, Wisconsin, Michigan and Ohio) and also make it easier for bankers to travel around the country. Although most bankers are based in Chicago and Milwaukee, firm personnel do not consider the offices in either of those cities to be Baird’s headquarters. “[McMahon] and I both worked in the Chicago offices of big New York firms, and there was always a gravitational pull back to the home office in New York,” says Booth. “Baird has evolved beyond that.” Booth is based in Milwaukee, while Mc- Mahon works in Chicago. Prior to Baird, McMahon was an M&A managing director at Credit Suisse First Boston and head of the industrial and capital goods group at ABN AMRO. Baird senior dealmakers do not like to define the firm as a boutique. “The term ‘boutique’ usually refers exclusively to an M&A product, whereas Baird’s investment banking business includes equity capital markets elements such as private equity, wealth management and fixed income,” says McMahon. “We think we’re much broader than a boutique,” says Booth. “That word just doesn’t capture the spectrum of expertise and service offerings that we provide. Some equity-oriented firms fit the definition of a boutique, but they principally focus on a single industry segment. Our model is fundamentally different than a lot of global integrated banks because we have an agency- and advice-oriented model throughout the entire firm where we don’t take balance sheet risk.” This model has positioned the firm to be very aggressive, he says. The recruitment front, as mentioned earlier, is one area where Baird has been aggressive. It’s no secret many bankers are looking for work due to consolidation and regulatory changes in the US investment banking industry. “We can’t ignore what’s gone on in the investment banking marketplace,” says McMahon. “Large players have become banks, and that can be a negative to their employees because there’s tremendous uncertainty about what that means and how the larger firms are going to operate their investment banking operations going forward. You’ve also got boutiques that, in many cases, have a fairly limited operating model which doesn’t include an equity component. In the middle ground, there are very few firms that have a strategy like Baird’s and are privately held.” Baird’s private ownership is essential for building a longer-term strategy. “Public firms have very significant concerns about how they’re perceived in the market and by institutional investors,” says McMahon. “It’s hard for folks who are publicly traded to be out aggressively hiring.” Although many middle-market firms are recruiting bankers exiting the revolving doors of larger players, the parties doing the hiring, including Baird, have had little turnover in their executive suites. “While we have brought in a lot of new people and continue to do so, the turnover at the senior level is virtually nonexistent,” says McMahon. “We’ve had consistency from a senior turnover standpoint for the past five to six years, which is very unusual, particularly among the bigger shops. That’s important because, in this environment, clients are thinking to themselves, ‘Is this institution going to be around,’ and ‘Are the bankers who’ve committed to shouldering the day-to-day load going to be here?’” Middle-market headwind The middle market may not be bleeding as heavily as the upper echelons of the investment banking universe, but its members have not been unscathed. “The middle market in general was less affected by the overall credit downturn which started over a year ago, and we and other middle-market players have been holding our own relative to upper-market players,” says Booth. The credit crunch has helped Baird on the dealmaking front. Three of Baird’s main competitors in the upper middle market—which involves deals worth between $400 million and $1 billion—are no more. The demise of Lehman Brothers, Bear Stearns and Merrill Lynch has enhanced Baird’s ability to compete in the upper middle market. Baird most recently advised Wisconsin compact equipment manufacturer Gehl Co. on its $450 million sale to a French manufacturer, Manitou BF, which closed on Oct. 27. Baird’s affiliation with Gehl began 20 years ago, and the firm advised Gehl on its IPO. Baird’s longtime relationship with Gehl played a role in securing the mandate, but another factor was the absence of past competitors, says McMahon. According to Thomson Reuters, Baird has advised or co-advised on 67 announced deals since January 2007. Another recent Baird mandate involved Paul Purcell: ‘This game is all about people and getting the greatest amount of talent, no matter where they’re based.’ advising middle-market private equity firm Allied Capital on the sale of its Norwesco Inc. portfolio company (which Allied co-owned with Stone Arch Capital and Norwesco management) to Olympus Partners. Robert Monk, a managing director in Allied’s Washington, DC, office, says
Page 1: The insider’s guide to investment

'Playing Offense' - Robert W. Baird

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