Financial advisers often talk about taking a barbell approach to building a portfolio, splitting it halfway between long-term and very short-term bonds, for example, diversifying to mitigate risk.
Gene Urcan, a former managing director at Santa Monica boutique investment bank Capello Group, believes the investment-banking environment in Los Angeles follows the same pattern, and there’s a big opportunity in that empty middle.
In July, Urcan joined New York’s Brean Capital as a senior managing director and is setting up a Century City office where he plans to focus on deals between $100 million and $1 billion.
“I think it’s a very underserved market,” he said. “You have guys like Capello, (downtown L.A.’s) Greif & Co., (Brentwood’s) Intrepid Investment Bankers and (Century City’s) Imperial Capital – those guys mainly do sub-$100 million deals. And (Century City’s) Houlihan Lokey Inc. wants to swim way upstream.”
Urcan said Brean provides the capabilities of a large-scale investment bank with the personal touch of a consulting firm, such as New York’s McKinsey & Co.
“If there’s a deal to be done, we will help you on the advisory side,” he said. “But at the same time, we’re going to help you in all the other areas. Such as shareholder value and dealing with activist groups. The reality is that most of these chief executives and chief financial officers are limited in time and their ability to vet stuff out.”
Urcan said there’s a substantial market for Brean to serve companies occupying that middle ground – even if it doesn’t provide the complete suite of services that a major bank like New York finance giant Morgan Stanley might.
“A public company that’s worth $400 million may use Morgan for some of their big stuff,” he said. “But at the end of the day, in some instances, Morgan’s fees just don’t make sense. There’s plenty of room for multiple advisers to be part of deals.”
Urcan said the new office will initially be staffed by three to four senior bankers and as many junior associates, but he’d like to grow quickly. And he’s not worried about setting up shop after a multiyear run-up in the stock market, saying there are still plenty of deals to be done.
“It’s better to create a large investment bank in a bull market versus a bear market,” he said. “And in my couple of months at Brean, I’ve already found several companies who want us to do this kind of work.”
Green Shoots
Markets are supposed to be rational. But stocks’ recent plunge – which might have contributed to the Federal Reserve’s decision to hold off on raising interest rates – doesn’t make it seem that way to Reva Shakkottai.
“Every time the Fed has wanted to take action, the markets have had a fit,” she said. “The markets have held the Fed hostage. We’ve had an anticipation tantrum. A quarter-point increase should not bring the market down 10 percent.”
Shakkottai, a senior vice president at RBC Wealth Management in Century City, said the Fed mishandled its communication, which freaked out investors. But although their portfolios likely took a haircut, she said L.A. investors and companies shouldn’t worry because the situation is nothing like 2008. In fact, the correction might actually incentivize some deals, she explained, which should reassure the many Silicon Beach companies contemplating an exit given the white-hot valuations in the industry.
“The drop in valuations can be an additional catalyst, reducing the spread between bid and ask,” she said. “And the more clear the Fed’s path to liftoff becomes, more companies will move up the dates of their acquisitions.”
She also noted that the local situation is largely insulated from global turmoil such as cratering oil prices and weakness in China and emerging markets.
“Corporate tech buyers are back. Nontech companies are also acquiring. Competition in social media is intensifying,” she said. “What does that have to do with the price of energy?”
Giving Back
One of the L.A. area’s oldest banks is lending a helping hand.
Farmers & Merchants Bank in Long Beach, founded in 1907, announced last month that it made a $250,000 equity investment in Lake Forest’s Clearinghouse Community Development Financial Institution, which provides financing for lower-income and distressed communities that have trouble raising money given conventional lending standards, standards that have only tightened since the financial crisis.
Clearinghouse, which has about $232 million in assets, has made more than $1.1 billion in loans over its 19-year history, helping to fund the construction of affordable housing and community facilities.
With its recent investment, Farmers & Merchants is now Clearinghouse’s sixth-largest Class A shareholder.
C-Suite News
Tayiika M. Dennis, a partner at Beverly Hills accounting firm NSBN, has been elected president of the L.A. chapter of the California Society of Certified Public Accountants for 2015-16. … Brian Holmes, chief executive of Century City wealth management firm Signature Estate & Investment Advisors, has been named to Barron’s list of the top 100 independent financial advisers for the ninth consecutive year.
Staff reporter Matt Pressberg can be reached at [email protected] or (323) 549-5225, ext. 230.
