Capstone Partners LLC, Boston, has bought the former Morgan Stanley Capital Strategies Group and its "middle-market" M&A bankers and offices in Philadelphia, Chicago and Los Angeles, from the partnership of Morgan Stanley and Citigroup's Salomon SmithBarney, which owned the unit as a small part of its giant investment sales unit.
Capstone boss John Ferrara told me he's "making a calculated bet this is the right time" to be in the deal business: "We are nearing the end" of the US economic slump. "We're seeing recovery and increased activity. That's the major strategic force behind the transaction: the current marketplace for middle-market transactions is becoming very vibrant."
North American business buyout deals rose to 249 in the 3d quarter, worth $34 billion, triple the rate of a year earlier, says Prequin Ltd., a London-based data service.
Ferrara won't say what he paid for the group. Why did Morgan Stanley sell it to him? "They were no longer going to support the business in-house," since it's so small, for them.
The Philadelphia office, which moved Friday to Center City from Morgan Stanley's (formerly Miller Anderson & Sherrerd's) West Conshohocken office, is headed by Eric Williams, who will now serve as Managing Director and Head of the Eastern Region for Capstone. Ferrara says Williams "is working on some things in the defense world" as military contractors consolidate while US forces leave Iraq.
NEW: Williams said he joined predecessor Citi Capital Strategies in 2000 and took the job as Philly office chief in part because it was convenient for his wife,a pharma rep. In fact, "pharma outsourcing firms have been a pretty fruitful area for us."
Examples of the 100+ companies he's helped buy and sell:
- In 2003, sale of Philadelphia-based Center for Forensic Economic Studies, to LECG. "That was five Ph.D. economists, who tesify in labor disputes. They give statistical analysis in discrimination cases."
- In 2006, the sale of Cherry Hill Photo, which employs up to 6,000 mall Santas during the Christmas shopping season. "They produced the first naturally-bearded Santa Claus. It increased their revenues significantly." Sold to Chris Hansen's Eureka Growth Capital of Philadelphia.
- In 2008, the sale of Maryland-based HP White, which tests body armor for US troops in Iraq and Afghanistan, and has also tested the Popemobile, and re-enacted the John F. Kennedy and Columbine High School murders. Sold to Enertech.
"I enjoy the middle market because I get to work with people who've been very successful in their unique niche," Williams told me. And yes, deals are getting more common: "There is the potential for a higher capital gains tax next year; financing is more available; and debt multiples are starting to increase. And private equity funds have so much money, a lot of untapped funds to buy businesses. 2011 should be a good, fertile environment" to buy and sell all kinds of companies.