Ferguson Wellman gets creative in transitioning firm ownership
For the fourth time, the firm has been sold to the next generation of senior management. But this time, there's a twist.
by Matt Kish
Portland Business Journal
Staying local sounds great. But it's not easy for growing companies. The bigger a company gets, the harder it is for the next generation to afford buying it from the founders.
Ferguson Wellman Capital Management, one of Portland’s most storied investment firms, recently confronted the problem for the fourth time. Three times the firm has completely turned over ownership. Each time, the next generation of management bought the retiring group's stake. But this time it had to come up with a twist to make the numbers work.
The firm was founded in 1975 in the wake of the Watergate scandal and during a period of Cold War hostilities, oil embargoes and flagging consumer confidence. Not surprisingly, it's always prized conservative management. It's also always valued giving employees a stake. Thirty-three of its 50 employees now own shares of the firm.
"You treat your own car better than a rental," is an office mantra.
But selling to the next generation is no longer as easy as pulling out checkbooks. The firm now manages more than $5 billion in assets for a variety of wealthy individuals, charities, pension funds and businesses, making it one of the biggest financial players in Oregon.
"As our company has gotten larger, the financial part of (ownership transition) has become larger as well," said Chief Operating Officer Steve Holwerda. "That's why many companies end up selling to an outside company. It is hard to stay private and employee owned."
Bring in the consultants
About two years ago, Ferguson Wellman did what any company on the verge of succession would do. It hired an investment banker to explain the options.
The banker said if Ferguson Wellman hung up a "for sale" sign, it'd have plenty of bidders, including national banks, regional banks, trust departments and conglomerates that buy up independent investment firms.
The firm, after all, works with some of Oregon's most desirable clients. It has an enviable culture and a budding footprint in places like Seattle and Boise. It enjoys a "stellar reputation," said David Reichle, managing director of Portand-based Rain Capital Management.
But the discussions about selling the firm didn't go very far.
Ferguson Wellman's board knew the numbers. They knew they'd take a discount if they sold the firm to the next generation. But that didn't matter as much as keeping ownership local.
“I don’t think there’s any debate that an independent firm is in the best interest of clients," said director and Chief Investment Officer George Hosfield. "There's pride in being a privately held firm. I don't think anybody wanted it to end on their watch. There's not a price you can attach to that."
The twist
That's when the firm got creative.
Ferguson Wellman's five directors own 75 percent of the firm. For the first time, instead of having retiring directors sell their complete stake, they're stretching out the sales. The first will be stretched out over 10 years. That will make it easier for the next generation to afford the shares and it'll let the retiring executive keep a stake.
"At the end of the day, everybody said, 'This works,'" Holwerda said. "It gives more flexibility to the seller and to the buyer. It keeps us private. It keeps us employee-owned. We hope Ferguson Wellman is that way 100 years from now."
Rain Capital's Reichle applauded the decision to remain local and independent.
"The internal and external challenges for a firm of their size to stay local are significant so for them to make the commitment to their team and the community to stay local is certainly admirable."
As part of the ownership transition, Ralph Cole also joined the firm's five-person board. He's the eighth person to serve on the board, which hasn't added a new director since 1997.
Like many Ferguson Wellman employees, Cole's tenure with the firm goes back decades. He joined the company 20 years ago as an equity analyst.
"We’ve always viewed ourselves as a destination," Cole said. "Our recent hires came to us from big organizations because they want ownership and they want to drive their own future and their own destiny. It's kind of our secret sauce."
Hosfield said the deal is a sign of the board's belief in the next generation of management.
"If you’re going to sell to the next generation and you're going to get paid out over 10 years, you have to have a lot of confidence the company is going to do well."
The ownership transition won't mean big changes in how the firm operates. Ferguson Wellman will stick to its knitting as a firm that "manages quiet money in a quiet way." It will continue to focus on the Portland market while slowly growing its footprint in regional markets, including Boise and Seattle.
"We care about our clients and we have confidence that we're selling to a group that can shepherd this responsibly and continue on a path that we've been on," Hosfield said.
Closer look
FERGUSON WELLMAN CAPITAL MANAGEMENT
What: Independent and local investment management firm
Where: Portland
Ownership: Private
Assets under management: More than $5 billion
Directors: Ralph Cole, Dean Dordevic, Steve Holwerda, George Hosfield, Jim Rudd
Employees: 50
Shareholders: 33
Disclosure:
This article was not published by Ferguson Wellman or West Bearing. We do not take any responsibility for reviewing, updating or insuring accuracy of information included in the article. Ferguson Wellman and West Bearing disclaim responsibility for the legality of materials and copyright compliance on other publications or websites. This is provided for informational purposes only.