Morgan Joseph

IDD MAGAZINE
Morgan Joseph Turns East for New Business
The middle-market firm hopes to open its first branch in China this year, and it is hiring in this country to boost its research lines
5/21/10

To compete with larger investment banks, Morgan Joseph & Co. is further bolstering its trading and research businesses through hiring, and it is preparing to open its first office in China.

The New York investment bank has primarily advised middle-market companies on mergers and restructurings and helped them raise money in debt and equity markets. Now it is moving to take advantage of the Wall Street dislocations sparked by the credit crisis to expand its sales force and analyst roster.

"Several of our middle market-focused competitors have fallen by the wayside over the last couple of years. Several others are not in very strong positions," said John Sorte, Morgan Joseph's president and chief executive. "In addition, there are other firms that are coming into the banking side of the business, a number of firms, whether they are trading firms … or pure equity sales and trading firms … that are looking at getting into the banking side of business."

Morgan Joseph wants to increase its market share across the board, said Sorte, who has been a banker for four decades and once served as Drexel Burnham Lambert's CEO. "Others are taking advantage of this market, and from a defensive point of view, we really have to, as well."

His firm is one of many that have been attracted to Asia, where many economies are expected to grow dramatically.

Morgan Joseph is in the process of gaining approvals from the Chinese government to open a Beijing office this year.

Dennis Galgano, a former Drexel banker and Morgan Joseph's current head of international investment banking, will remain in New York but will oversee operations in that country.

"We have done a number of transactions in China," Sorte said. "It's our main focus on the international front. … From the point of view of capital raising, we've raised over $800 million of capital in the U.S. for Chinese companies, as well as [advised on] a number of M&A transactions."

This year, Morgan Joseph expects to add one senior and two junior professionals who have experience in Asia.

At the same time, it is adding to its equity and debt distribution businesses — a move aimed at retaining and recruiting middle-market investment banking clients.

John Morgan, the chairman of Morgan Joseph, co-founded it nine years ago with Fred Joseph, the former Drexel CEO who died last year. In addition to New York, it has offices in Atlanta, Boston, Dallas, Miami, Nashville, Pittsford, N.Y., San Francisco, Stamford and Delafield, Wis.

Like many other firms, Morgan Joseph cut back during the credit crisis. It had 165 professionals in the fall of 2008, but that number fell to 120 by March 31 this year. The firm has 130 dealmakers on staff now, with 69 bankers, and 41 in sales, research and trading; more professionals are being hired nearly every week.

Will McDermott, for example, is a veteran sales and trading pro who joined Morgan Joseph on Monday to run its institutional group. His duties will include expanding his firm's equity distribution capability.

It wants to help issuers raise money through initial public and secondary equity offerings, as well as registered direct issues and PIPEs.

McDermott was the head of institutional sales at Soleil Securities, which is owned by Bain Capital and Bessemer Venture Partners. From 2004 to 2007, he held the same job at Wachovia Securities.

Morgan Joseph also has been building out its private placement group. Last month, it hired Jonathan Lowenberg as a managing director and head of private placements. He had held a similar role at Merriman Curhan Ford. Also last month, Rachel Beck, a veteran of Enclave Capital and Broadpoint Capital, joined Morgan Joseph as a vice president in the private placement group.

Last year, the firm started its convertible distribution group and hired Joseph Castro, now based in the Stamford office, as head of convertible securities sales and trading. Last month, Gregory Sullivan and John Anderson joined as senior vice presidents in the convertible bond sales and trading group.

The firm supplements its own equity research with that of six Hilliard Lyons analysts through a joint venture, and Morgan Joseph provides coverage of roughly 170 companies, including those covered through the joint venture.

Senior managers at Morgan Joseph said they are conducting interviews to hire five equity sales professionals. It has 15 equity sales specialists, and it wants to double that number by yearend.

The firm also is interviewing senior bankers to help build out its business services and consumer and leisure operations.

"We think we now have the appropriate research products so that we can have a more sizable equity sales force," Sorte said. "And that will, the hope is, allow us to lead manage more equity offerings than we've been able to in the past, because we really had a relatively small sales force and really only could hope to be a co-manager" before the buildout effort.

Morgan Joseph expects its increased focus on distribution and institutional sales to supplement its financing and research arms.

"Somebody has got to finance intermediate companies and developing companies, because they need capital," McDermott said. "At the margin, the growth of the general economy is at the level of the developing companies. … So if you want to have employment growth and GDP growth in this country, being able to finance developing companies is a key component."

David Kestenbaum, head of equity research at Morgan Joseph, said that it wants to expand its coverage in the health care, technology, industrial and consumer sectors, and that it will add two or three analysts in the next year.

Morgan Joseph's analysts cover companies with capitalizations ranging from below $1 billion up to $2 billion — in the biotech, consumer and retail, defense, gaming, industrial and infrastructure, machinery, farm equipment and agriculture, media, medical devices and technology sectors.

The firm has nine analysts of its own and the six analysts from the Hilliard Lyons venture (who cover sectors other than those tracked by Morgan Joseph) feed their research for distribution to Morgan Joseph clients.