John Costas knows a little something about expanding an investment bank. While chairman and CEO of UBS Investment Bank from 2001 to 2005, he helped build the Swiss bank into a major Wall Street player through aggressive recruiting -- Ken Moelis and the 30 senior bankers he lured to the firm -- and, to a lesser extent, acquisitions -- Paine Webber & Co. in 2001 and Schwab Soundview Capital Markets in 2004.
Now Costas, 55, is steering the growth of his own firm, PrinceRidge Group LLC, a New York boutique focusing on fixed income, middle-market M&A and capital markets. Costas and his UBS colleague Michael Hutchins launched PrinceRidge in mid-2009 with $25 million in working capital and 50 employees. Today, it has 120 employees, including 17 investment bankers -- a number Costas hopes to expand by 30% to 40% this year.
In the past two years, PrinceRidge has logged about 20 M&A and capital markets transactions ranging in value from $25 million to about $250 million. In addition to expanding the investment bank, Costas now aims to increase structured mortgage trading and sales by about 40% and eventually expand into structured credit and municipal bonds. Overall, Costas' goal is to reach $400 million to $500 million in annual sales within the next four to five years -- a target that would require the firm to increase sales by 5 to 8 times.
"Ultimately, we want to be as broadly defined a boutique bank as we can, which includes a heavy emphasis on sales and trading, where the smaller guys generally aren't," Costas says.
PrinceRidge's fixed-income focus reflects its founders' roots. Costas joined UBS in 1996 as head of fixed income from Credit Suisse First Boston, where he was head of global fixed income for 15 years. He ended his UBS tenure as CEO of the bank's internal hedge fund, Dillon Read Capital Management LLC, which closed in 2007 after losing about $123 million in fixed-income trading. Hutchins, 56, was global head of fixed income, rates and currencies for UBS before becoming president of Dillon Read. Three other Dillon Read casualties are now partners at PrinceRidge, including PrinceRidge's co-head of commercial mortgage-backed securities Ahmed Alali, COO Collette Dow and co-head of commercial mortgage-backed securities, Ron Garner.
The hedge fund's alumni seem to have bounced back as evidenced by PrinceRidge's dealflow. Forbes Media LLC reportedly hired the firm in early March to help it restructure a $50 million loan. PrinceRidge also served as bookrunning manager in late March for the $40 million initial public offering of BGS Acquisition Corp., a special-purpose acquisition company. Late last year the firm advised private equity firm Vision Capital LLP on its acquisition of a majority stake in German chemicals company United Initiators GmbH & Co. KG and its purchase of Philadelphia-based food ingredient supplier Sweet Ovations LLP for an undisclosed sum.
Drumming up midmarket deals is a team of 12 senior and midlevel bankers led by managing director and head of investment banking John McNicholas. Before joining PrinceRidge, McNicholas co-founded Westport, Conn., advisory boutique Regian Capital Advisors LLC with Michael McGovern, now Prince-Ridge's managing director and debt capital markets head. Prior to launching Regian in 2007, McNicholas spent three years at J.P. Morgan Chase & Co. as a managing director in its midmarket M&A business and 14 years at Blackstone Group LP.
McNicholas' team concentrates on industrials, specialty chemicals, financial institutions and energy. The energy focus is thanks to the late 2011 addition of Houston-based managing director Ric Saalwachter, who joined from Madison Williams & Co. LLC, where he co-headed the bank's energy group. Joe McCann also joined the firm at that time as managing director and COO of investment banking. He was most recently co-head of financial institutions at StormHarbour Partners LP.
The expanding boutique may reach into new sectors, as it's "in conversations with 11 different banking, trading and sales groups" in healthcare, consumer, defense, security and technology, Costas says. He hopes to remain in "fragmented industries -- sectors with many smaller companies," adding, "we also look at areas where we can do high-yield capital markets transactions that can support their [M&A clients'] initiatives."
McNicholas, 49, adds that Prince-Ridge is keen on expanding into consumer and retail -- "a good extension of industrials" and healthcare services and devices -- which offers strong debt capital markets and M&A potential. He hopes to double the investment banking team this year.
Because of PrinceRidge's low overhead, it can expand and not have to generate a windfall of deals to maintain its profitability, says McNicholas. However, if McNicholas' expectations of an improvement in midmarket M&A are correct, a windfall may be possible. Private equity exits, private equity firms deploying dry powder for acquisitions and cash-rich strategics putting balance sheets to work acquisitively could make for a busy year for PrinceRidge's growing group of bankers.