The deal that sent public policy experts Washington Research Group to MF Global was the work of two former Citi execs and shows that strong relationships in the trading industry still carry weight.
"With a firm our size, we couldn’t build the sales force fast enough to take advantage of the product cycle," said Robert Moore, who heads capital markets at Concept Capital, and which sold Washington Research for an undisclosed price on Oct. 26. "It’s a global product now and we didn’t have the distribution. We realized that and Washington Research realized that as well."
WRG specializes in public policy issues in Washington, D.C., and investors have been attuned to the bevy of new laws that affect publicly traded companies in areas such as health care, finance and the environment. Moore pointed out that the investor demand was heavy in Europe, Asia and Australia, so WRG needed a bigger platform, one that was global.
Peter Forlenza, MF Global’s head of equities worldwide, and a colleague of Moore’s at Citi, said WRG will be the cornerstone for the firm to build its U.S. equities business. It will continue to look for specialized research products. In the meantime, fresh from WRG’s annual post-election conference–last week’s was its thirty-third Washington Symposium–Forlenza said he was impressed with the new product. "It has never been more relevant and it has never been in higher demand," Forlenza said.
Both execs agreed that MF Global was a better fit. Concept wasn’t about to build WRG into a global product and MF Global already had research sales teams around the world. In addition, MF also had accounts open with the major global managers, so the transition was reasonably seamless, according to Forlenza.
The transaction was considered nonmaterial. For MF Global, that means the price tag was less than $5 million.
The deal’s genesis began with Forlenza investigating ways to expand the firm’s U.S. equities business. He had been looking into the mini-prime area and had been meeting with Moore, his old boss. Concept Capital offers hedge funds a risk management product and an administration platform. The conversation eventually focused on WRG and terms of the sale were hashed out.
The deal gives MF Global its first traditional cash equities product in the U.S. And that was another attraction: there was no overlap in trading or sales. Since Forlenza joined MF a year ago, the firm has added desks for equity derivatives and program trading. But it lacked a high-touch desk. The WRG deal brings 17 policy research analysts, as well as six sales traders and nine research salesmen.
MF Global marks WRG’s third firm in the last two years. WRG had been at The Stanford Group from 2004 until the firm blew up early last year, amid allegations of fraud at the parent company. WRG landed at Concept Capital early last year, as it was looking to build its equity trading business. The goal for Concept was to augment its hedge fund business with the cash equities business, led by sales and trading veteran Rich Parker. Parker, who headed sales and trading at Stanford as well, has joined MF Global.
But according to one source, Concept was unable to get WRG back to the lofty $38 million in commissions in 2008 that The Stanford Group was able to generate–a time that might now be considered the halcyon days of trading. Since then, commission levels have tightened and times have been difficult for all firms. Research is now considered a must-have for firms.
For Concept, it has already looked to begin replacing WRG’s revenues, which represented the majority of its equity trading commissions. On Nov. 1, it hired Patrick Gallagher to head its institutional sales group. Gallagher’s charge is to look for research products and to build a sales team. Shortly after his hire, Concept signed an exclusive agreement with BDR Research, a provider of fundamental analysis in the health care and industrial/materials sector.
For WRG, MF Global is another stop in its long journey that also included stays at firms like Schwab and Soundview. However, with MF Global, at least on paper, it looks like WRG might have found a long-term home. Its chief executive is Jon Corzine, the well-known former head of Goldman Sachs. But in recent years, Corzine is best known as being a former U.S. senator from New Jersey and also the former governor of that same state. Commented Forlenza, "It was evident throughout the acquisition process that Jon Corzine understood the value of policy research."
