Despite a last-minute breakdown in the long-delayed sale of its consulting unit, SEI Corp. officials and some industry observers feel the consulting firm will have better days ahead - at least better than before.
While the failure of the sale agreement is a setback, industry observers say most of the fallout - the loss of clients and staff - is behind SEI Capital Resources. Now, they argue, clients and staff remaining are likely to stay and ride out the next transaction.
SEI Corp. announced it would separate the unit into an independent entity under a new name that has not been chosen yet. In its announcement, SEI also said it planned to make a stake in the new firm available to staffers and is still seeking a new owner for the unit.
Ultimately, SEI Corp. would like to reduce its ownership of Capital Resources to less than 20% within about a year, said Hank Greer, president of SEI Corp.
He said there are several ways that could be accomplished, including spinning off the firm to SEI Corp. shareholders, spinning it off in a management buy-out, entering into a joint venture with another firm or outright selling the unit.
SEI also is looking for a new chief executive officer for the unit, replacing Charles Marsh. Mr. Marsh said the new plan called for a change in leadership, but he added he would stay until the separation is completed, which he expects to happen by summer. He then plans to pursue other opportunities in the financial services industry.
Mr. Greer said SEI will choose shortly among two executive recruiters on its short list and expects to hire a new CEO shortly after that.
SEI Corp. went back to the drawing board last month after an agreement with Rochdale Corp., a New York brokerage firm, was called off at the last minute. Sources close to the talks said Rochdale was trying to renegotiate the purchase price, and SEI officials became concerned that the brokerage firm could not raise the money.
Rochdale Chairman Carl Acebes was traveling and could not be reached for comment.
SEI Corp. put the consulting unit in play last year due to concerns over conflicts of interest with SEI's asset management divisions and changes in the firm's strategic direction. The company had been concentrating more heavily in the asset management and mutual fund management in recent years.
Other consulting firms were approached when the sale effort first started, including Hewitt Associates, Lincolnshire, Ill.; Towers Perrin, New York; and William M. Mercer Asset Planning, Inc., Deerfield, Ill. All three declined to bid, saying the firm was not a good fit with their own businesses.
Fidelity Investments, Boston, also studied the organization, but passed for similar reasons, and SunGard Employee Benefit Systems, Birmingham, Ala., was rumored to be interested at one point.
Rochdale eventually emerged as the leading candidate and had been negotiating in earnest since last fall.
Will the breakdown of the deal harm SEI's consulting efforts? Probably not, said merger and acquisition professionals. The failure to close this deal is a letdown, but SEI's consulting unit has probably seen the worst effects of being on the block already, they said.
"There is no question every time you stop and start, you create a disruptive situation," said Brad Hearsh, managing director of PaineWebber Inc., New York. Once a deal is in place and staffers rally around it, there is a danger of disillusionment if it falls through, he said.
But he added that, since the sale efforts had been going on for over a year, a lot of the fallout - staff and client defections - is probably behind the SEI unit already. By now, the firm's core should be relatively stable, he said.
"You're left with a group that's loyal to the cause," clients and staff who are determined to see this through, said Mr. Hearsh.
"There is a level of patience among some of the employees and some of the clients," said Christopher Spofford, an associate with investment bankers Putnam Lovell & Thornton, New York. But he added SEI should do a deal sooner, rather than later.
Mark Scalzo, a vice president of Putnam Lovell, said he worried the property had been damaged because of press reports about its client and staff losses during the lengthy sale process.
Several large clients have terminated SEI Capital Resources as a consultant, including the Florida State Board of Investment, Oklahoma Public Employees' Retirement System and Boston City Retirement System.
The losses have been stabilized and Capital Resources has added some new clients since the end of the year, said Mr. Greer.
"The business has leveled out in the last 60 days," he said. Additionally, making the announcement of the plan to make Capital Resources a separate company had a positive effect for clients and employees, he said.
Capital Resources' contribution to its parent company's revenue had dropped from 20% at the time SEI announced Capital Resources was for sale to about 15% by year-end 1995, but revenue is holding steady now, noted Mr. Greer. SEI stopped reporting Capital Resources' revenues as part of its results last year, when it classified the consulting unit as a discontinued operation.
If SEI is determined to sell Capital Resources, it will find a buyer, said Perrin Long, an independent consultant to the financial services industry.
It may be difficult because of the client and staff losses, but a new deal will likely get done, he said.
"Sometimes houses are on the market for two to three years, but if you cut the price somebody will buy it," he said.
"In this case hopefully they'll be able to find a buyer, but it won't be easy."