When it came time to sell Barrington Associates, Managing Director Jim Freedman put a high value on maintaining the small investment bank's corporate culture. He spent more than a year in discussions with buyer Wells Fargo & Co. to devise a structure that would allow Barrington to work as a stand-alone division of the financial conglomerate.
The deal finally closed Aug. 21. While the purchase price remains confidential, Freedman now says openly that he tried to duplicate the model of Foothill Group, another small firm that Wells Fargo absorbed as part of its 1998 merger with Norwest Bank. Today, it's an asset-based lender called Wells Fargo Foothill in Santa Monica.
"We spent a lot of time thinking about the structure of the deal and the way that this deal could be like Foothill in terms of its success," Freedman said. Since being acquired, Wells Fargo Foothill has roughly tripled its business, loaning about $12 billion last year to 10,000 middle-market companies.
Barrington will retain its Los Angeles office and identity. "Initially and keep in mind this may last a long time we are going to maintain the Barrington name," said Tim Sloan, head of Wells Fargo's Specialized Financial Services Group in Los Angeles. "We think that's a terrific asset in the middle market."
Like Foothill, Barrington serves the middle market, which it defines as companies with revenues between $25 million and $1 billion. However, Barrington specializes in mergers and acquisitions advice, and will function as "Wells Fargo's principal unit handling middle market mergers and acquisitions," according to the company.
At best, the deal will combine Wells Fargo's vast capital resources with Barrington's connections with entrepreneurs. "It will continue to maintain its focus and hopefully not have anyone feeling absorbed into anything," said Sloan. "Wells Fargo owns 80 to 90 businesses, some big and some small. The important point is that customers feel they're small enough to get personal attention."
Strategically, the Barrington acquisition represents the parent bank's latest attempt to become a financial supermarket with every imaginable service. But in the past, Well Fargo's Chief Executive Richard Kovacevich has eschewed investment banks because of their volatility. When Wells Fargo bought First Security Bank of Utah in 2000, it included Van Kasper & Co., a small broker-dealer that ultimately became Wells Fargo Securities. At the time Kovacevich made some pointed remarks about the firm.
"When Dick said he didn't want investment banking, he was referring to the sales, trading and retail side of the business," said Freedman. "Now he's very excited about this because his whole mantra is he wants Wells to offer the whole product and we fit a piece of the puzzle that they don't have."
San Francisco-based Wells Fargo has assets of $500 billion and 154,000 employees. In contrast, Barrington has about 40 investment bankers, and since its inception in 1982 has completed more than 400 transactions with a cumulative value of more than $15 billion, according to the company.
The tremendous difference in size begs the question of how long Barrington can maintain its independence. Foothill Group, the model for this deal, "has been integrated as part of our wholesale banking group," said Sloan. "It changed its name to Wells Fargo Foothill and they operate as a division."
Barrington becomes the third boutique investment house to sell in the last year. In October 2005, Los Angeles-based Houlihan Lokey Howard & Zukin sold a 70 percent stake to Japan's Orix Group for $500 million. Houlihan Lokey is nearly 20 times larger than Barrington.
Elsewhere, Virginia-based Harris Williams & Co. with roughly 110 investment bankers, agreed last year to a takeover by PNC Financial Services Group Inc. in Pittsburgh.
Freedman started Barrington at age 29 after working five years at Foothill. His former boss, John Nickoll, who is retiring this year as head of Wells Fargo Foothill, served as informal matchmaker for the acquisition. However, Barrington officially represented itself in the deal, unlike Houlihan Lokey and Harris Williams. Wells Fargo also represented itself as the buyer. Larry Braun at Sheppard, Mullin Richter & Hampton LLP served as Barrington's legal counsel.
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