In all, some 16 senior BRC staffers, led by chief executive Robin Pellish, have opted to leave their days-old owner. And, at least on the face of it, the staffers who are leaving represent much of the intellectual talent that underpinned BRC.
It has been known for some time that senior executives of Darien, Connecticut-based BRC had been looking to move out from under the shadow of BARRA, the Berkeley, California-based investment analytics vendor that bought Rogers Casey in 1996. The original thinking behind the BARRA deal, insiders say, was an assumption that BRC consultants could be a potent distribution force for the BARRA product set, an assumption that never materialized. To some extent, then, both parties were ready to part – the issue was one of price.
The preferred route, BRC executives say, was a management buyout. In fact, firm officials say that an MBO was close to being finalized, when, on Wednesday, March 27, BARRA president Kamal Duggirala and Kevin Greene, chairman and chief executive officer of Capital Resource Holdings, announced a drastically different resolution. For a reported $14 million in stock, CRA was purchasing BRC – that same morning, officials at BRC say, many of the 96-odd employees of BRC found a package on their desks terminating their employment with BRC and inviting them to apply to join the new firm.
Buying a consulting firm, however, like buying an investment management firm, requires finesse as well as deep pockets. The assets are the people, and it is now clear that many of the BRC people are preparing to walk away from the deal.
Apart from Pellish, who has a singularly high profile as a consultant, the departees include many of the firm’s most senior consultants and research and analytics staff. The consultants include Anne Buehl, Christopher Cesare, Carla Haugen (head of private equity and alternative investments), Tim Jackson, Davis Katz (head of client service), Christopher Lyon, Joseph Nankof, Barry Thomas, Adam Wheat, and Meriam Zandia. The researchers include Elizabeth DeLalla, head of US equity research; Roger Fenningdorf, head of manager research; Julie Moore, head of international equity research; and David Morton and Danielle Muller, co-heads of fixed income research.
This is presumably unwelcome news to a buyer who has just shelled out some $14 million, a figure that is almost certainly considerably higher than the figure that BRC’s own executives had in mind for their proposed MBO.
What will clearly become a point of contention is the existence or lack thereof of non-competes – BARRA and CRA appear to believe that non-competes will preclude the would-be departees from taking clients with them, and, according to one source, will “pull out all the stops” to ensure that these non-competes are enforced.
But BRC executives maintain that either they do not have non-competes (although some non-competes were demanded when BARRA originally bought the firm from its two founders, John Casey and Steve Rogers, some six years ago) or that the non-competes were voided by the manner of the acquisition. Presumably, at the very least, lawyers will profit from this wrangle.
How clients react to these events remain to be seen. The fact of the matter is that many of the relationships between consultant and plan sponsor are more personal than they are corporate, so the circumstances of the BRC-CRA wrangle will initially present plan sponsors with more questions than answers. The $350-billion or so in investment assets that BRC advises represent some of the bluest chips in public and corporate America – the state pension funds of Connecticut, Pennsylvania, and New York City Teachers, for example, and the likes of General Motors, EDS, Eastman Kodak and the World Bank on the corporate side.
This is not the first acquisition for CRA, which traces its origins back to AG Becker Funds Evaluation in 1968 – the firm also bought the Wellesley Group in April 2000. Under Greene, the firm has consistently expressed its ambitions to move into more of a leadership position in the industry, which the acquisition of BRC would clearly achieve for it.