Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 5, 1995 TAG: 9502030030
SECTION: BUSINESS PAGE: G-1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
FERGUSON, Andrews & Associates Inc. of Roanoke is about to triple its size by gobbling up a larger and older Virginia brokerage house. The merger almost certainly will mean the loss of its headquarters in Roanoke.
The end of next month is the target date for the 2-year-old financial services firm to acquire Anderson & Strudwick Inc., which was founded in 1948 in Richmond.
Their merger will produce Ferguson, Andrews, Anderson & Strudwick, a company with offices in seven Virginia cities, 125 employees and a client base of 15,000.
There is no doubt that Ferguson, Andrews is the acquiring firm, yet the two companies are making an unequal contribution to the combined brokerage house.
Ferguson, Andrews, for instance, has 51 employees, while Anderson & Strudwick has 74. As for the client base: 5,000 customers for Ferguson, Andrews and 10,000 for Anderson & Strudwick.
Marriage with the venerable Richmond firm should instantly produce something that has so far eluded Ferguson, Andrews - profitability.
Ferguson, Andrews has been slowly building toward that goal, with a development plan calling for turning a profit sometime during its fourth year. Because the firm opened in May 1992, its fourth year would begin next May. The company said it was on schedule to meet that target.
But, said President T. Michael Smith, the merger with Anderson and Strudwick would immediately produce a profitable company starting April 1.
With the statistics tilted so strongly in one direction, why is Ferguson, Andrews the acquirer?
Smith said his firm's founder and chairman, J. Gray Ferguson of Charlottesville, ``is very interested in growing this business and making it a larger business.'' Also, Smith said, Ferguson ``has the resources to do that,'' and Anderson & Strudwick was for sale. Terms of the sale have not been disclosed.
Smith said the Anderson & Strudwick owners believed they had become managers rather than salesmen; they wanted to get back into sales. Ferguson, he said, had the management capability and the resources to make the acquisition, while ``their top people wanted to get back to the selling side. It worked.''
Charles M. Mills III, chairman of Anderson & Strudwick, said Ferguson approached the owners five times; the sixth time, they decided to listen. Anderson & Strudwick had not been offered for sale, he said, but ``all I am and ever have been is a stockbroker.''
Ferguson, Andrews is smaller in terms of employment, products and years of existence, Mills said, but Ferguson ``has very substantial assets'' and is committed to building the state's outstanding brokerage firm.
``His capital and our sales make a tremendous combination,'' Mills said. ``Besides, we like him.''
Ferguson, described by Smith as a private person, declined to be interviewed for this story, sending word that Smith spoke for the company.
The announcement of the pending merger in mid-January kicked up what Smith described as a fight. The Roanoke Times & World-News, quoting Smith, said the combined firm would be headquartered in Roanoke. The Richmond Times-Dispatch, relying on Anderson & Strudwick officials, declared that the site would be Richmond. The official press release was silent on the subject.
Smith and James P. Kern, vice president and operations manager, fought hard for Roanoke because, Smith explained, ``we like to live here.'' Those in Richmond, he said, ``mounted a big battle.''
Last week, Smith weighed the probability at a 70 percent to 75 percent chance that the firm will be headquartered in Richmond with ``a significant presence in Roanoke.'' He said the location had been decided ``for all practical purposes.''
The decision means that Smith and Kern will be leaving Roanoke, which is ``tearing at my heart strings,'' Smith said, but the location will be more convenient for Ferguson and ``better for the firm.''
Regional broker dealers have their head offices in Richmond, Smith explained. ``If we want a significant presence, we have to be where the action is,'' he said.
As it approaches its third anniversary, Ferguson, Andrews has experienced both successes and failures, Smith said. That even includes the original concept of what it would become.
Ferguson, Andrews is one of the progeny of the old Dominion Bankshares Corp., founded by some of its former employees prior to the bank's merger with First Union Corp.
Ferguson, former president of American Safety Razor Co. near Staunton, was the angel of the new company and became its chairman. The Andrews part of the firm's name is his wife's maiden name. Ferguson's desk sits in the firm's office, where he visits three to five times a month.
Ferguson takes an active role in running the business, ``for which we are grateful,'' Smith said, although Smith and Kern run the day-to-day brokerage operation. In addition, his son, Jay G. Ferguson, recently joined the subsidiary Ferguson, Andrews Investment Advisors Inc. of Charlottesville.
The other founding partners were Smith, Kern and Gregory Feldmann. Like virtually all of the 19 people who opened the doors in the remodeled Liberty Bank Building at Jefferson Street and Salem Avenue, the trio had been involved in the investment side of banking.
Feldmann left the firm in September - on good terms, he and Smith both said.
Several years ago, Feldmann won a Kellogg fellowship, which he used to study sustainable development in Latin America, which, he explained, concerns the balance or match between economic development and preservation of the world's resources.
To pursue this interest, Feldmann subsequently joined forces with the Cabell Brand Center for International Poverty and Resource Studies at Roanoke College, where he is working on several projects.
Feldmann said he also has continued in a financial advisory capacity to corporations and is active in a buyout by a major company. He said he specializes in mergers and acquisitions and in arranging debt equity for corporations.
Leaving Ferguson, Andrews, he said, gave him ``latitude'' to pursue these interests.
Feldmann was not involved in the merger, but to him it ``looks like a good thing'' because the two firms ``fit one another.'' He said the merger constitutes the execution of the goals established when the firm was founded.
Smith said the original concept for Ferguson, Andrews was a generally equal division among three lines of business: brokerage, money management, and merchant and investment banking. The last involves raising money for companies in the form of equity (stock) or debt (bonds and notes) capital.
It didn't work out quite that way.
Brokerage leaped out to consume 80 percent of the Ferguson, Andrews business and has remained that way. Brokerage, said Smith, has been extremely successful.
Perhaps because the brokerage markets have been expanding in recent years, some other stockbrokers in Roanoke said the arrival of new competition did not affect them.
Tyler Pugh, senior vice president and Roanoke branch manager of Wheat First Butcher Singer, said Ferguson, Andrews ``certainly was another name on the scene'' when it opened in 1992. He said he couldn't assess the local impact because ``there's no way to measure it, but there was not much impact on us, no.''
Robert Kulp, manager of the Roanoke office of A.G. Edwards & Sons, said the opening had no affect ``that I can pinpoint. Interest rates affect us considerably more than competitors.'' The market mood in general is more important to business than other brokerages, he said.
Peter Milward, manager of the Roanoke office of J.C. Bradford and Co., declined to comment.
The merged company will have 66 brokers, and Smith predicted that the number soon will grow to 100.
The Roanoke office has 12 brokers, virtually all of them experienced salespeople lured from other firms. Smith said the merger should give the company the ability to hire promising young people, something Ferguson, Andrews cannot do now because it lacks training capability.
As brokers have joined the firm, the proportion of people who once worked for Dominion has shrunk to about one-fourth of the Roanoke staff.
Kern said recruits are attracted to Ferguson, Andrews because the company is growing, but it's still a small regional operation. If a potential of 100 brokers statewide sounds like a lot, he said, the number contrasts with 400 to 500 at other regionals.
Smith said Ferguson, Andrews ultimately would like to be a 100-broker financial institution - but one in which he would personally know at least 98 out of the 100.
The second line of business, money management, did not take off until 1993 when Kenneth and Sarah Neathery joined the firm and helped to create Ferguson, Andrews Investment Advisors Inc. of Charlottesville. Kenneth Neathery once managed investments for the old Colonial American National Bank in Roanoke and later for Jefferson National Bank before forming his own investment firm.
``Ken grew the business pretty fast,'' Smith said. It now accounts for about 20 percent of the firm's business.
Neathery said the subsidiary has tripled the assets under management for individual and corporate clients since it was formed in 1993. The staff of four, including Jay Ferguson, will offer that service to the present clients of Anderson and Strudwick once the merger takes place.
Smith concedes that the third line of business, placing of debt and equity financing for corporations, has not been successful. Ferguson, Andrews, he said, ``didn't have the contacts'' to build a reputation for investment banking. Although it has taken part in consortiums of brokers issuing financing, such as that for Valley Financial Inc. of Roanoke, it has developed little business on its own.
Smith said he hopes that the larger resources of the merged companies will give a lift to this effort.
The merging firms will consolidate their offices in Richmond, Charlottesville and Lynchburg without laying off people.
Ferguson, Andrews brings to the merger offices in Roanoke and Bristol, while Anderson & Strudwick has branches in Norfolk and Fredericksburg.
Missing from the lineup is Ferguson, Andrews' early attempt to operate an office in the Washington, D.C., suburban community of Falls Church.
``The Northern Virginia area is so large and so diffuse,'' Smith said, ``we couldn't find enough people we were comfortable with and who were comfortable with our smaller firm.''
The company finally closed the office, which seemed lost by itself in the big city, rather than ``continue to pour money down the hole.''
In places like Bristol and Lynchburg, on the other hand, Ferguson, Andrews found the right people and a receptive community, Smith said. Its brokers have a clientele extending into smaller communities throughout the state.
So, at least for now, Ferguson, Andrews, Anderson & Strudwick seems destined to serve Virginia's middle to larger cities as a mid-size brokerage firm.
by CNB