It seems that whenever securities brokerages change hands there is inevitably litigation, and the takeover of the old Beverly Hills-based Dabney Resnick firm by Torrance-based Imperial Credit Industries Inc. is no exception.

Dabney Resnick, since reconstituted and now named Imperial Capital LLC, is known for its expertise in trading high-yield bonds and in the private placement of debt.

The firm was co-founded in 1989 on Rodeo Drive by Neil Dabney and Judy Resnick, both formerly of Drexel Burnham Lambert. In 1996, following the departure of Dabney, and a failed financing of an East Coast furniture company (which led to expensive and losing litigation), Dabney Resnick was sold to Imperial Credit, which is led by H. Wayne Snavely, chairman and CEO. Dabney has alleged in Los Angeles Superior Court that Imperial Credit has shortchanged him on the sale by a few million dollars, with the exact amount unspecified.

Sales of securities firms seem to lead to bruised feelings and lawsuits, probably because the terms of sale are rarely straightforward. It's not often such outfits are sold for cold, hard cash. Rather, there are usually lengthy buyouts, based upon complicated evaluations of the firm's current value or projections of future profits.

As a result, Dabney alleges he has never received a dime for the sale of the firm, in which he owned a 28 percent stake, to Imperial.

"I built a firm for eight years, it was sold, and I never got paid. That's not a very good feeling," Dabney said. As a minority shareholder, he opposed the sale to Imperial, but he said he was outvoted. His suit notes the firm had 100 employees and annual revenues of $25 million in 1996.

His advice to others: "If you are a minority shareholder in a company, be very sure to have lawyers look at your exit strategy."

Skip Miller, the Westside lawyer retained by Imperial Capital to defend against the suit, confirmed that Dabney never got a cent but he said that is how it should be.

"The firm had negative net worth when Dabney sold his stock. His claims are worthless, and he knows it," said Miller.

By Miller's reckoning, the old Dabney Resnick firm was floundering, and only an infusion of fresh Imperial Credit funds saved it. Miller said Dabney's claim will ultimately be compelled into binding arbitration. Dabney last week said he thinks the case will go to court.

Both sides last week were unclear on the timing of arbitration which would obviate a jury trail but one source hinted it would be soon. Meanwhile, co-founder Judy Resnick also has a suit on file against Imperial, in which she alleges that Snavely and Imperial engaged in a "scheme and plan to 'gut' the firm of all of its assets and transfer the same to a new entity..." She is suing for $25 million. Neither Resnick nor her lawyer could be reached for comment.

Imperial is also disputing Resnick's claims.

Starting at the top

In this hot market, veteran investment bankers are wont to start their own firms, and cut the deals the way they see fit, when they like it. With that in mind, Jonathan Schwartz, formerly of Libra Investments Inc., Wells Fargo & Co., Drexel Burnham Lambert and others for the last two decades, launched his own shop Beverly Hills-based JLS Capital Inc. at the end of 1997.

What has he done since? A few transactions, not to mention a $200 million deal for Phoenix-based Tartan Textile Services Inc. to finance an industry roll-up in the industrial linen laundry business, details of which will be cleaned up this week. The management of Tartan will stay on, and take an equity stake.

"But this a done deal," said Schwartz. "Aurora Capital is providing the equity financing, and senior money center banks are providing the debt." Aurora Capital LLC is a merchant bank in West Los Angeles. Industrial linen companies are the owners of napkins, towels, sheets and other linens used by hotels, hospitals, rest homes and other organizations. They usually deliver fresh linens every day, and take back the dirty ones for washing.

A $200 million deal used to be over the head of one-man investment banking shops, but in today's world, with plenty of institutional money floating around, such deals can be "privately placed,' said Schwartz. "I will work on arranging management buyouts of companies, financed by institutions," he said, referring to insurance companies, merchant bankers such as Aurora or Leonard Green & Partners, or certain bank arms.

Cooling M & A; market?

It takes confidence to commit millions of dollars to buy a business, especially at the all-time record multiples company sales price divided by annual earnings that enterprises command today.

But if you read the papers, you'd think domestic profits are weakening, Asia is in collapse, Russia is teetering and big nukes might fly about the Indian subcontinent.

Ergo, a weakening M & A; market in the last few weeks? "No," said Jim Freedman, managing director and founder of Barrington Associates, the Westside-based investment banking shop. "We're not seeing it. I get a dozen calls a day from financial buyers, looking for deal flow."

Barrington, which has grown to 20 professionals (recently adding five), signed up to handle eight transactions in May, in its usual $10 million to $350 million bracket, said Freedman. "I have to tell you, we are red hot," said Freedman. "This is our best year ever."

Example? In May, Barrington engineered the sale of Corinthian Marketing Inc., maker of Headliners sports figurines, to Beverly Hills-based Equity Marketing Inc., the $150 million-in-sales toy company. Terms were not disclosed.

Additionally, while prices are high, they are not quite as steamy as the sales of publicly held companies might indicate. Private companies are selling for between eight and 13 times pretax earnings, below the 13-to-15 times that public companies command, said Freedman. Big buyout funds have raised record amounts of capital, and need to put it to work, said Freedman. "The M & A; market is still very robust," he said.

Contributing Reporter Benjamin Mark Cole covers the local investment community for the Los Angeles Business Journal. His e-mail address is

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