"We call this Act Three," he told me one day recently from the Westside high-rise office of Intrepid Investment Bankers, his new firm devoted to mergers and acquisitions in the regional middle market (think companies with $20 million to $200 million in sales).
FOR THE RECORD:
In an earlier online version of this article, the subheadline erred in stating that clients of Barrington Associates had been left in the lurch after the firm's 2006 acquisition by Wells Fargo.
W. Michael Rosenberg, 51, joined Freedman in 1985 and Ed Bagdasarian, 46, signed on in 1989. In the years that followed, they and Freedman built Barrington into a premier M&A advisor for midsize entrepreneurial companies. They expanded nationwide and, in 2004, into the Far East with a Shanghai office.
The firm's signature deal in that era was the 2002 sale of Herbalife International to two private equity firms for nearly $700 million.
Barrington jumped up another level in 2006, when it agreed to be acquired by Wells Fargo & Co. That was Act Two. Wells "made a compelling case," Freedman says. "They were a huge lender to the middle market. They could feed us a tremendous amount of business."
The flow went in the opposite direction too, for Barrington could introduce its clients to Wells Fargo's private banking services. "We thought this might be a really interesting way for us to expand," Freedman says.
For a couple of years the arrangement worked well. Barrington doubled its revenue in its first year with Wells while retaining its independent identity. Then came 2008, and Wells Fargo joined with Wachovia Corp. in the largest U.S. bank merger ever, creating a $1.3-trillion behemoth.
Wachovia brought its own huge securities and investment banking operation to the merger, which meant that Barrington's days as an independent shop were numbered. Its clients were again falling off the lower edge of a radar screen tuned to much bigger companies.
"It was very difficult for us to understand their world, and difficult for them to understand our world," Freedman says. In May 2010 he, Rosenberg and Bagdasarian decided to strike out on their own again. When they had joined Wells, Barrington had 50 bankers on its staff; they left with eight or so, and they've since built back up to 15.
The idea, Rosenberg says, is "to get back to our roots of helping entrepreneurs get private capital."
Intrepid's landscape is not the investment banking market of legend and glamour. Its clients, as were those of Barrington, are typically small entrepreneurs or owners of family businesses who spent their working lives building up family companies, sometimes as the second or third generation.
They're looking for what bankers call "liquidity events" — selling their firms in preparation for retirement, or looking for private equity investors or partners to provide them with capital to survive in an increasingly competitive niche industry. They're not candidates for venture firms or initial public offerings. For some, the very act of seeking capital is a novel experience.
What Intrepid knows is that they're thick on the ground in Southern California — firms in healthcare services, the food and beverage industry, consumer products, specialty manufacturing. They're the infantry of the U.S. economy.
Take Nelson Nameplate Co., the client in Intrepid's first completed deal. With $20 million in annual sales and 200 employees in Atwater Village, Nelson makes (as its name implies) metal and plastic nametags and labels for equipment or machinery manufactured by others. That's half its business; the other half is manufacturing membrane switches, the sealed push buttons you might find on the keypad of a credit card-activated gas pump.
Nelson's owners, Tom Cassutt and Dave Lazier, were looking for an exit after owning and operating the company since 1984. They had a large portfolio of investments in other companies and were devoting most of their attention to running two manufacturing firms, in Fontana and Irvine.
"We decided we were personally overextended," Cassutt says. Nelson had stopped growing and plainly needed full-time leadership.