Capital Resource Advisors LLC, Chicago, acquired the investment management consulting business of BARRA RogersCasey Inc., Darien, Conn., for $14 million.
Observers won't say that CRA's deal-savvy chairman and chief executive officer, Kevin J. Greene, got a bargain, but the price -about 0.7 times annual revenue - is considered low. It's also $3 million less than BARRA Inc. paid for the company in 1996.
Mr. Greene declined to comment on the price.
The company will be renamed CRA RogersCasey and remain in Darien. John Dickson, chief executive officer of CRA, will oversee operations. Robin Pellish, RogersCasey's senior managing director, and Joseph F. Nankof, managing director and head of investment consulting, were named to the executive committee of CRA RogersCasey, Mr. Greene said.
All 95 employees of BARRA RogersCasey were offered employment contracts, which include company ownership. BARRA RogersCasey employees have not had access to stock options since BARRA reorganized itself into two units two years ago - one for core products and one for ventures, like BARRA RogersCasey - that were targeted for sale, said Mr. Greene.
Mr. Greene said he was sure most employees would accept their contracts.
Similar client focus
RogersCasey and CRA have a similar client focus on corporate pension plans, endowments and foundations, but have no clients in common. Other than integration of the investment manager databases from each consulting firm, Mr. Greene said few changes are planned. BARRA RogersCasey clients now will have access to transition management services and a commission recapture program, and deeper coverage of alternative investments, Mr. Greene said.
"This is a pretty simple story. Both firms will get dramatic gains from this relationship," Mr. Greene said, noting, in particular, BARRA RogersCasey's stronger defined contribution plan practice. About 50% of RogersCasey's defined benefit plan clients also use the firm for defined contribution plan consulting.
BARRA RogersCasey clients have been informed about the deal, but it's too recent to take a position one way or the other, said Robert Hunkeler, vice president and director of investments at International Paper Co., Stamford, Conn. BARRA RogersCasey is the consultant for IP's $6.6 billion defined benefit plan. "We haven't had a chance to have a formal discussion yet with our contact there," Mr. Hunkeler said.
Sean Sanderson, a spokesman for the $24.6 billion Commonwealth of Pennsylvania State Employees' Retirement System, Harrisburg, said: "We will continue to maintain our relationship with RogersCasey and that relationship is based upon business performance. We expect them to maintain the same level of service as they have in the past."
Other large pension fund clients are: the $19 billion defined benefit plan of the State of Connecticut Retirement & Trust Funds, Hartford; the $32.1 billion defined benefit plan and the $9.7 billion defined contribution plan of New York City Teachers' Retirement System; the $7.8 billion defined benefit plan of the Illinois State Board of Investment, Chicago; the $2.8 billion defined benefit plan of Kimberley-Clark Corp., Dallas; and the $1.9 billion defined benefit plan of the District of Columbia Retirement Board, Washington.
The acquisition by CRA is the latest, and BARRA RogersCasey employees no doubt hope the last, chapter in the saga of one of the industry's largest, oldest and most respected consultants. The firm brings 100 clients and $350 billion in assets under advisement to CRA.
Founded in 1976, what was then Rogers Casey & Associates was independent until 1996, when risk-management software producer BARRA Inc., Berkeley, Calif., bought the firm for $17 million.
BARRA was willing to take a loss on the business now, said Kamal Duggirala, chief executive officer, because it found a "good home for what is a great franchise. We were in no rush to sell it," despite an aggressive plan announced two years ago to divest or close non-core ventures.
(BARRA Strategic Consulting Group Inc., also in Darien, was closed in February this year. Its principals, including RogersCasey founder, John F. Casey, formed Casey, Quirk & Acito LLC, Darien, the same month.)
"I won't say that we'd make the same decisions today that we did when we bought RogersCasey," said Mr. Duggirala. For example, BARRA hoped to cross-sell sophisticated risk analytics software to the "large population of plan sponsors" that made up RogersCasey's client base, he said. But, "while very large corporate plans were interested in what we offered, others were not willing to compensate us for the skills we brought to them. It was just not as big an opportunity as we expected."
Mr. Duggirala said the original purchase price reflected "a much stronger strategic interest we had in acquiring RogersCasey back then; $17 million or $15 million or $14 million - it didn't make that much difference to us then."
He said the $14 million paid by CRA is "more reflective of market realities than anything else," since company valuations overall are lower now than they were in 1996.
Investment banker Doug Klassen, managing director with Cambridge International Partners Inc., New York, said a price around 0.7 times revenue of about $20 million is low. BARRA paid about 0.8 times revenue when it bought RogersCasey in 1996.
Investment consulting firms generally tend to sell for between 1 and 1.25 times revenue, he said.
"While consulting firms tend to sell for a substantially lower multiple than investment managers, this price is under the range expected for consulting firms of its size," he said.