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Investment firm taps local talent: Riderwood opens office, targets mid-size companies

July 24, 2006

An East Coast investment-banking firm is opening an Indianapolis office and has recruited three high-profile professionals who bring a wealth of experience to manage operations.

Towson, Md.-based The Riderwood Group Inc. wants to help midsize companies raise $5 million to $200 million in capital, a range largely ignored here by outside rivals, firm executives said.

"There really is not a national mid-market investment bank [in Indianapolis]," company President Mitchell Fillet said. "This is a place where the big firms have not quite focused enough where we think they should."

Riderwood is counting on industry veterans Daniel E. Klausner, Michael K. Miles and Eric D. Todd to lay the foundation for what is hoped to be a long and lucrative stay. Besides raising capital, the trio can guide companies through mergers or acquisitions. The men already are helping raise $50 million for a biopharmaceutical transaction.

Klausner, 42, is an investment banker who excelled at the local offices of two national firms. He was responsible for numerous mergers and acquisitions, and public equity-debt placements valued in the billions of dollars while at Prudential Securities Inc. He left for UBS Financial Services Inc. in March 2001 after becoming the largest-producing salesman at the firm. He founded Silver Birch Cos. this April to help companies raise capital.

Miles, 50, led Miles Capital Advisors LLC and focused on capital formation and debt refinancing. Miles previously helped advise young companies at Concord Partners LLC. It closed in 2003 along with the Leagre Chandler & Millard LLP law firm, which oversaw operations. He has negotiated debt transactions with several major financial institutions in the United States, Europe and Latin America.

Todd, 37, founded business consultancy Kesbridge Financial Corp. in 2002 after spending 15 years at Conseco Capital Management, the asset-management division of Conseco Insurance Co. As coleader of the fixed-income division, he managed more than $30 billion of the parent company's insurance money.

The three should make a formidable team, said Anthony Schneider, managing director of Schneider Huse & Associates LLC, a locally based investment-banking firm that targets midsize deals as well.

"From what I know of them, they'll do just fine," he said. "It's a good market right now."

Schneider Huse is one of a handful of local competitors serving the market Riderwood is coveting. Schneider launched the company in 2002 after his employer, the former Bank One, abandoned its investment-banking operations here.

Competition remains

Other firms such as City Securities Corp., Periculum Capital Co. LLC and David A. Noyes & Co. are all active to some extent in the middle-market arena.

Yet there should be room for another, said Robert Shortle, managing director of Periculum.

"These are good times," he said. "We have not pursued all deals that have come our way because we're too busy. We're trying to find additional talent ourselves."

Shortle formerly managed the investment-banking services of Raffensperger Hughes & Co., which became NatCity Investments Inc. after it was sold in 1994 to Cleveland-based National City Bank. Another competitor, McDonald Investments Inc., moved to Cleveland in 2002.

Many large investment banks that vacated the Indianapolis market pulled up stakes during the rash of consolidations in the 1990s.

In locating to the city, Riderwood is leasing space on East 96th Street at Parkwood Crossing. That commitment alone tells David Millard, a member of Barnes & Thornburg LLP's entrepreneurial services group, the firm is serious about making an impact.

"It makes a pretty immediate statement in the marketplace," he said. "When you get the bigger investment bankers here, they never stay long. And they certainly don't put brick-and-mortar offices in."

Founded in 1985, Riderwood has additional locations outside the Baltimore area. They include Denver; Harrisburg, Pa.; and Wilton, Conn. Besides Indianapolis, the firm is looking to broaden its scope to second-tier cities such as Des Moines, Iowa; Omaha, Neb.; and Laramie, Wyo., Fillet said.

The strategy is to enter small but strong markets where little capital formation exists, unlike in major cosmopolitan areas such as New York City and San Francisco where larger firms are deeply entrenched.

Fillet formerly worked at Prudential Securities' New York City office and came to know Klausner, who later introduced him to Miles and Todd. The three local men had done deals together through their consulting firms, but the opportunity to join Riderwood was "very appealing," Klausner said.

Few big deals

Most of the corporate financing and M&A activity in the Indianapolis area peaks at $100 million. A deal will occasionally top $200 million, like the sale of Suros Surgical Systems Inc. in April to Massachusetts-based Hologic Inc. for roughly $240 million.

In that instance, management of the medical-device maker began preparing in December for an IPO and hired J.P. Morgan, a New York-based investment banker, to shepherd the process.

At the other end of the spectrum, a firm like J.P. Morgan won't touch a deal at the low end of what the local firms target, Millard said.

"Frequently, $10 million is the bottom, and that's not a floor you hear from out-oftown investment bankers," he said. "But for the activity we have here, it's been a very under-banked market."

Signs are beginning to point to a slowdown, though. Shortle expects activity to dip as soon as next year, because for the first time in years, Periculum has been engaged by a troubled company to guide its transaction, he said.

Schneider concurred, noting the real challenge for the newcomer will arise when the economy softens.

"But it's a good market right now," he said. "We're having a record year."

The Riderwood folks hope they can make a future boast.

Said Fillet: "We think we have as strong a team in Indianapolis as our competitors."
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