Newly spun—off from parent company, SMH Capital looks for greater opportunities

Mikaila Adams, Associate Editor, OGFJ

Last August, Sanders Morris Harris Group Inc. began exploring strategic alternatives for its Capital Markets unit. In late January, the company sold a significant portion of the unit, including the investment banking, fixed income, and New York—based institutional equity departments, to Siwanoy Capital LLC, a company formed by the senior management of the units and Pan Asia China Commerce Corp. for an undisclosed amount. Newly—spun—off SMH Capital is optimistic about the opportunities going forward.

The deal

The transaction transforms the 20—year—old parent company, Sanders Morris Harris Group, almost entirely into a wealth/asset management company. While SMH Group still holds 20% of SMH Capital, the capital markets unit is now a spin—off.

According to the company, discussions about the strategic direction of the company started in the fall of last year. Credit markets were beginning to strain and the company decided to separate the wealth management side of the business — a fairly steady business, from the capital markets side of the business — more volatile and cyclical in nature.

The future of SMH Capital

According to Ric Saalwachter, a managing director at SMH Capital, the mid—size investment bank will continue its current operations with energy as its primary focus. The goal is to increase its client base more mid— to large—cap companies, while preserving the boutique—focus with small— to mid—cap clients.

William W. Sprague, CEO of SMH Capital Markets, agreed. “This is an excellent transaction for all parties. We believe there are significant opportunities for a privately owned investment banking firm like ours that are extremely attractive. The difficult markets make the prospects for a highly regarded boutique all the more timely. In the current environment, we anticipate broadening and improving the products and services that we offer our institutional and corporate clients by attracting additional high quality professionals.”

Focused team, additional opportunities

As a way of broadening the horizons, the company brought in new researchers. “One of the things we’ve been able to do, which will be a great advantage to our clients, is an acquisition of a team that used to work in the Louisiana office at Coker and Palmer. In October they joined us doing research for oil and gas companies,” said Saalwachter.

Now, companies from XTO and Chesapeake, down to Southwestern, Ultra, and Petrohawk are being covered. Saalwachter and the folks at SMH Capital see this as a bridge into a larger market. “We’re hoping to do more banking business with somewhat larger companies, while not leaving behind the small cap companies where I think we’ve got a real niche and a real reputation,” he explained.