Former LBO Guru Plies Changed Investment Market
By Micky Baca
New Hampshire Business Review, May 17-30, 1991
[Photo bye Micky Baca]
When Terry Morton and his partner first established a private investment outfit in Hampton three years ago, they set their sights on acquiring a few $100,000 to one-billion-dollar, national companies they could revamp and then turn over at a tidy profit.
After all, Morton and his partner, Eddy Nicholson, had made millions in 1986 when they sold off chunks of the former Portsmouth-based Congoleum Corp. after purchasing it in a record-breaking leveraged buyout six years before.
Morton was CFO of Congoleum. His and fellow-investors' daring $480-million leveraged buyout, subsequent build-up and then perfectly-timed liquidation of the company's holdings in floor covering, auto parts and ship building left Wall Street heads spinning and Morton rich. (He will only say the sale brought in about $1 billion.)
But the world of high-stakes merges and leveraged buyouts has changed drastically in the past few years. Tighter tax laws in 1986 and the crash of the junk bond market in 1989 have made the LBO practically extinct, Morton says.
What was to be Morton's partnership's first, post-Congoleum corporate acquisition - a Northeast manufacturer with $1 billion in sales - fell through and a proposed purchase of a $130-million California defense company evaporated."
Now Morton's company, Granite Partners, has lowered its acquisition expectations to target $10-million to $30-million companies in New Hampshire, Vermont and Massachusetts.
And the 46-year-old multimillionaire from Rye is spending much of his time on a deal that many on Wall Street pooh-pooh - putting together investors to buy an ailing New Hampshire bank.
Morton's company is among those who have proposals before the FDIC vying to become the new owners of one or more of five troubled banks in the wake of an announcement by the federal government that it will help recapitalize such lending institutions in conjunction with privately-funded acquisitions. He won't say which assets of which bank or banks his group has in mind.
Besides what he says is the prospect for a good return in investment, Morton considers acquiring a New Hampshire bank a contribution to the state he's lived in and helped guide since the mid-1980's. (He's an ad hoc budget advisor to Gov. Gregg's office and was a close advisor to Gov. Sununu.)
"It's important that not all our banks be controlled by foreign interests," he says. "It's my opinion that foreign ownership of banks starts to put on a set of standards that are less entrepreneurial oriented."
But combining New Hampshire and banks in a plea for investors just doesn't play well on Wall Street these days.
I went to Wall Street and got a less than enthusiastic reception," Morton says, noting that he is concentrating on local investors but is still in the preliminary stages of putting together a package.
Still, Morton is confident that he can assemble a group of investors for up to $100 million in capital required for the deal. He has, he says, gotten some "real interest from some people that represent some real money" - some of whom are from New Hampshire, Vermont and Maine and some whom are from outside the United States.
"They have the opportunity to invest in a bank that is clean as any bank," he says, noting that the FDIC assistance will mean bad debts will be wiped out for new investors. "The only risk is one of future performance."
Morton says it is difficult to get money on all levels these days for acquisitions; banks aren't lending, junk bonds have dried up and private investors are extremely wary. "The go-go era of the mid to late 1980s, where you could finance anything regardless of whether it made sense at all, is gone."
On the other hand, he says, there are investors for the right deal: "There's all kinds of people that have money to invest. It's just a question of when they're going to do it."
Granite Partners isn't the only company seeking private investors to buy into a FDIC subsidized deal to salvage troubled New Hampshire banks. Kidder, Peabody & Company of Wall Street also has a proposal out on the streets seeking some $40 million in investor funds to create a bank combining assets from Dartmouth Banks and Numerica Savings Bank.
But Morton says the Kidder Peabody proposal is directed at smaller investors than Granite Partners is seeking. His company is looking for individuals willing to match Granite Partners' investment of $10 million to $50 million, according to Morton.
Morton sees the recent FDIC decision to sell Bank of New England to Fleet-Norstar Financial Group Inc. and its non-banking partner, Wall Street investment firm Kohlberg, Kravis and Roberts, as a positive reflection on his company's bid for a New Hampshire bank because he says, it shows that independent money outside of the banking business can succeed in acquiring a bank.
"The people who have run banks have created the problems so why do we want more people who run banks to run more banks?" he asks. "We need to get capital into the banking system that wouldn't otherwise go into the banking industry. If all the banks that get sold get bought up by existing banks you have an incestuous relationship that's not bringing in new management talent or new money."
Morton says the FDIC has told him "I will not be discriminated against because I am not a banker. All I really want is a level playing field.
Now he must convince investors it makes sense to invest in the structure with managers from outside the industry."
But raising the money isn't the most challenging aspect of Granite Partner's quest to buy a New Hampshire bank, according to Morton. It's trying to understand what the FDIC it trying to do." He plans to meet with FDIC representative in Washington this week.
Management at the bank which Granite Partners is looking to buy is "looking forward to the business approach to running a bank," according to Morton, who says top executives there will be "augmented" but not replaced.
While Morton told the Business Review two months ago that he expected his company's bank bid to be wrapped up one way or another within 60 days, he now says he'll be surprised if the venture is completed within the first half of this year.
"I've learned a lot. The FDIC has let me know they're not going to be acting quickly here," he says.
Morton works on the bank purchase daily, when he isn't scouting other potential investments for Granite Partners, reviewing joint venture deals or handling his duties as a trustee for the University of New Hampshire.
Granite Partners is close to making its first actual acquisition of a company since its inception - a mid-sized manufacturer based in New Hampshire and in need of capitol, according to Morton.
While he now juggles about four or five investment projects at a time, if the bank acquisition goes through, Morton says he'll be putting 90 percent of his energy into that venture.
In the past, at least, the native of Hammond, Indiana, has had a knack for "being in the right place at the right time," having achieved considerable personal wealth after starting out as CPA "with zero.""It doesn't hurt to be willing to work 80 hours a week either," he says.