In The News
Four Horsemen Ride Again?
Investment Dealers' Digest
by Avital Louria Hahn
Monday, January 27, 2003 - Ben Howe, head of mergers and acquisitions at SG Cowen, is leaving the firm after nine years there, but he is not looking for opportunities with other investment banks or private equity firms. Rather, Howe's ambitious plan, which he says has been percolating for five years, is to revive the model popularized by the Four Horsemen, the legendary tech boutiques that were acquired in the late 1990s and subsumed into larger banks.
Howe, who is launching America's Growth Capital in partnership with Maria Lewis Kussmaul, says today's economic conditions are just right for the emergence of full-service boutiques to serve emerging-growth companies in the style of the old Montgomery Securities, Alex.Brown, Hambrecht & Quist and Robertson Stephens.
"The kind of niche we want to occupy is the one that used to be occupied by the Four Horsemen," said Howe. These post-boom days, he said, are very similar to the pre-bubble years, when the four boutiques engaged in traditional capital raising and when deal sizes were much smaller, as they have become since the tech bubble burst. And while there are many new boutiques these days, few offer full-service banking to emerging-growth companies, Howe said.
In particular, Howe and Kussmaul set their sights on Thomas Weisel Partners as a contemporary model for their new venture.
"We look at Weisel as being the most comparable to what we are trying to build," said Howe, who worked at Montgomery Securities as head of East Coast and technology investment banking alongside Thomas Weisel before Weisel started his own firm.
America's Growth Capital will be based in Boston and will focus on technology, tech-pharmaceuticals and restaurants, as well as other emerging-growth companies. It will offer research, brokerage and full-range investment banking services and employee ownership, as does Thomas Weisel Partners. But it will differ in several ways: While Thomas Weisel has always had hefty chunks of capital-today estimated at nearly $1 billion-Howe and Kussmaul are starting with $5 million and foresee a much smaller emphasis on private equity, Kussmaul said. Instead, the main focus will be on investment banking and brokerage.
Another key difference is that Weisel started his firms at the height of the bubble, while Howe and Kussmaul are launching theirs in what may be the bottom. This presents a hiring opportunity, as many high-caliber bankers are looking for work and as compensation levels have dropped. But finding top producers, bankers who have a strong background in many types of financing, will not be easy, Howe said.
Kussmaul, a ranked analyst of emerging-technology companies, worked with Howe in SG Cowen's Boston office from 1991 to 1998, when she left to co-found Castile Ventures, a seed and early-stage venture capital firm. In the new boutique, she will head research. Asked how research at the new firm will keep its proper distance from investment banking, Kussmaul said that the idea is to return to the way research was done in the early 1990s, before tainted recommendations became so widespread. In those days, she said, research identified the emerging-growth companies that deserved coverage and backing.
"We are going back to the early '90s when research made the call of what new issues we were going to back," she said. "If research doesn't like it, we don't do it."
At SG Cowen, Howe worked with such clients as Informix Software Co., Starbase Corp. and Davos Corp. As M&A levels fell, many of the M&A bankers were moved into industry groups, as they were at other banks like Goldman Sachs. It is not yet clear whether Cowen will replace Howe, and if so, with whom. An SG Cowen spokesman confirmed that "Howe decided to leave the firm to pursue other interests." Succession, he said, has not been decided.
