Fox-Pitt Kelton is aiming to be “the world’s pre-eminent FIG investment bank”, declares FPK chief Giles Fitzpatrick following its management buyout.
That may sound overly ambitious, but there are no other pure global financial institutions group (FIG) investment banks in the market. US and US/European competitors include Sandler O’Neill and KBW (Keefe Bruyette & Woods). The ambition also marks a return to the independent approach that characterised FPK before it was bought in 1999 by Swiss Re.
Swiss Re decided that it was time to sell the business after a period of restructuring under Fitzpatrick. In a process run by Evercore, a shortlist was chosen and ultimately a group including the JC Flowers private equity fund as well as management and staff, emerged as the buyer.
Chris Flowers, the founder of the eponymous private equity fund is a former FIG banker who left Goldman Sachs more than 10 years ago, and made his name transforming failing Tokyo-based Long-Term Credit Bank of Japan into Shinsei Bank in 2000.
Recent acquisitions by the JC Flowers fund include the purchase of independent mid-market merchant bank NIBCapital, sold in August 2005 for €2.1bn by two Dutch pension funds ABP and PGGM. However, one deal that eluded Flowers was the futures and securities business of collapsed broker Refco, after hedge fund investor Man Group trumped Flowers’ US$756m offer in October 2005.
Alongside JC Flowers in the FPK management buyout consortium is Gary Parr, vice-chairman of Lazard, who has invested in a personal capacity. There is also existing management and a residual Swiss Re stake. The consortium, says Fitzpatrick, is “an alliance of strengths around FIG expertise and competitive advantage”.
Fitzpatrick, who arrived at FPK in January 2005 from ABN AMRO, where he was previously head of its European equities business, explains why he was given a mandate for change.
“FPK had been seriously injured in spring 2004 when KBW set up in Europe, sourcing its new hires from FPK,” he says. “Although Swiss Re had stood behind the rebuild, FPK was bruised and lacking in confidence; in contrast to our US business our product distribution and penetration in Europe was weakened.”
By August 2005, Fitzpatrick had reviewed the business and concluded that FPK needed to restructure, focus on its core strengths and flatten the management.
“It became clear that things weren’t working. Staff turnover was too high and the management hierarchy, with two teams [advisory and equities], was not a size consistent with a specialist boutique. The brand was under-leveraged. We had lost client share of mind and momentum.”
But all was not lost. “The FPK brand was still valued,” Fitzpatrick says. “Hardly any client had closed the door. There were signs that clients were reaching out against the more generalist offerings around and wanting FPK to go back to its roots.”
Fitzpatrick reformed the management team in August 2005, bringing it back under one roof. By then he had brought in 30 new staff, and a further 20% left the business as part of the restructuring. “It was a changing of the guard,” he says. “Once the new management team had bedded in, and new practices started to take root, we began to get economic traction from September 2005.”
It seems that for FPK there is a clear need to continue to strengthen its core activities while acknowledging the new opportunities that come with new shareholders. The client and revenue synergies of this association remain to be discovered but the potential is clear for all to see.
Fitzpatrick concludes by saying: “We’re lucky to be in such a large and busy sector [financial services represent about 25% of the total market] and we share a passion for FIG with our new investors. That said, we know we need to broaden and deepen our credentials.”