Some in Los Angeles real estate circles still remember Michael Montgomery for engineering the biggest deal ever in downtown Los Angeles property circles the $650 million sale in 1984 of the twin-towered Arco Plaza to Shuwa Corp.
That turned out to be the apex for downtown office building values.
Back then, Montgomery worked for Atlantic Richfield Co.; in intervening years he has worked for Walt Disney Co. (he restructured Disney’s stake in EuroDisney) and then for DreamWorks SKG, where he helped raise $1 billion in a private placement. For the last three years, he was chief executive of the $100 million (sales) Sega GameWorks, a 3-year-old joint venture put together by DreamWorks, Universal Studios Inc. and Sega Enterprises.
Now Montgomery has come home, to join his brother Jamie Montgomery, as co-managing partner at Santa Monica-based Digital Coast Partners, the new merchant bank targeting Internet ventures.
Digital Coast Partners backs Internet ventures from conception to initial public offering, providing strategic planning, private placement funding, M & A; services, and business incubation.
The Montgomerys are also raising a $250 million later-stage venture fund to capitalize on the deal flow and expertise already in the partnership.
Digital Coast Partners, now with 23 professionals on board but looking to double its staff, is also aligned with Palomar Ventures, an $80 million venture fund founded by veterans Jim Gauer and Randy Lunn.
So how will the brothers divide responsibilities, something that can raise hackles among siblings? For now, they are pretty much looking at business “on a deal-by-deal basis,” said Michael. “I have my contacts and relationships, and he (Jamie) has his.”
Over time, functional duties or job descriptions may evolve, said Michael. “Besides, I am the older brother,” he said.
Betting on distress
Investing in the world’s financial hotspots has been the stock in trade of Westside-based Canyon Capital Partners LLC, led by partner Mitch Julis. So it’s no surprise to find the Canyon bottom-fishers now own highly distressed bonds in Washington, D.C.-based Iridium LLC, which recently filed for Chapter 11 bankruptcy protection.
Iridium has defaulted on $1.55 billion in bank loans, after failing to lure enough users to its 66-satellite global phone network.
Houlihan Lokey Howard & Zukin has signed on as advisors to the bondholders.
Iridium is still negotiating with creditors, including Canyon and a bondholders’ committee, to restructure its debts, and is seeking fresh equity. Bondholders want to know a lot more, before cutting any deals. Iridium debt is trading for 11 cents on the dollar of face value a Canyon-type deal. Julis could not be reached for comment last week.
Super agent
When investment bankers, money managers or venture capitalists want life insurance, who do they call?
Increasingly, it is 31-year-old Keith Wagner, Northwestern Mutual independent agent extraordinaire.
“I cover investment bankers at DLJ (Donaldson Lufkin & Jenrette), at Goldman Sachs, at Apollo (Advisers), at Merrill Lynch,” says Wagner. “It’s typically word of mouth, how I get my business.”
How good is Wagner?
There are more than 7,000 Northwestern Mutual insurance agents in North America, and the agent with the 10th-largest book of business is Wagner, who maintains offices in downtown Los Angeles, Long Beach, and West Los Angeles.
What do investment bankers and venture cap hotshots who piece together corporate finance deals prefer for their own life insurance? The No. 1 product, says Wagner, is an “overfunded variable life insurance plan.”
Under such plans, policyholders can contribute as much as they want, deep into the seven figures if need be, which will be invested into one or a mix of 17 mutual funds offered by Northwestern Mutual.
The key benefit is that appreciation of assets inside the policy is tax-free. And the tax-free status is for the life of the policy, over the years, no matter how great the appreciation, and no matter what the tax bracket of the policyholder.
Additionally, policyholders can borrow an amount equal to as much as 90 percent of the assets in the policy superb if a hot deal becomes available (something prone to happen in an investment banker’s life). Even better, loans are not treated as taxable income under U.S. tax laws, noted Wagner.
“It is a great way to accumulate capital, provide for loved ones, and save money for retirement, college educations, or future investments,” said Wagner.
How did the youthful Wagner convince 500-and-counting investment bankers, venture capitalists and others to pick him as their agent? A former psychology major at Long Beach State, Wagner credits mostly hard work, the brand name he works for, and luck at getting started with investment bankers 10 years ago, just as the finance world went into a long boom.
“Now, when I visit someone new, they have already heard about me,” says Wagner. “That helps a lot.”
Cyber lawyer
With the words “e-commerce” or “Internet” attached to seemingly every IPO or venture cap deal these days, securities and corporate lawyers find themselves spending days getting up to speed on the Net and the best ways to finance innovations.
Perhaps with a leg up on his competition is Neil Wertleib, a partner at downtown-based Milbank, Tweed, Hadley & McCloy. He’s a former computer programmer, and still a confessed Internet and computer junkie who designs his own Web pages.
“I worked my way through law school as a computer programmer,” said Wertleib. “Now, I have put up my own Web site. It helps to understand the technical side of the business, when crafting legal agreements.”
With all sorts of new money pouring into the Web occasionally invested by less-experienced hands the Boalt Hall grad sometimes reminds venture funds about the ABCs of Internet investing, at least from the standpoint of a legal beagle:
? Preserve rights with respect to selling shares into an IPO. Have it in writing that you can participate with the company founder in the sale of shares.
? Preserve the ability to transfer “control rights” to another buyer of equity. These rights might include board seats, rights to inspections and financial covenants. If one can’t transfer such rights, the equity value could be reduced.
? Have the right to force the company to register shares for sale with the Securities and Exchange Commission. The public market is the most trusted and liquid, and it behooves early equity investors to seek the public market as an exit.
Formerly with O’Melveny & Myers, Wertleib worked in the telecommunications industry prior to joining Milbank Tweed in 1995.
Though Web-savvy and spending more than half his time on the sometimes explosively profitable Internet deals, Wertleib does not take equity in client ventures.
“Some law firms do that, but it could create a conflict of interest,” he says.
Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].
