A marriage of convenience.

Williams Capital sells 15% stake to German bank

One of the country's largest African American-owned investment banks is teaming up with a German financial services giant. The Williams Capital Group L.P. of New York (No. 4 on the BE Investment Banks list) has sold a 15% stake in the firm to HypoVereinsbank, the sixth largest bank in the world and the second largest in Germany in terms of assets under management.

Financial terms of the deal were not disclosed.

At press time, the transaction had already received the blessing of officials from the New York Stock Exchange and had just gotten the green light from the Financial Services Authority, the United Kingdom's regulatory securities body. "Theirs is a passive ownership interest," says Christopher J. Williams, chairman and chief executive of Williams Capital.

The deal offers considerable benefits to both parties.

With over 46,000 employees and roughly 1,400 branches worldwide, HypoVereinsbank serves more than 5 million customers. However, HypoVereinsbank, which primarily handles commercial banking business such as mortgage lending, has limited investment-banking interests in the United States. Thus, it will tap Williams Capital's investment banking prowess and its relationships with American institutions and high-net-worth individuals. Asserts Stephan Bub, CEO of HypoVereinsbank, North America and Asia: "We are extremely pleased to become a limited partner in the Williams Capital Group. The firm has built an excellent reputation in the capital markets as a direct result of its entrepreneurial and professional orientation."

For its part, Williams Capital will access HypoVereinsbank's U.S. customer base and leverage the German bank's client relationships around the world. In particular, the transaction will undoubtedly help Williams Capital strengthen its stock and bond trading activities in Europe, where the firm is making a push to win new business. During the fall of 1998, Williams Capital opened a London office to establish its international presence.

"We continue to expand internationally, especially on the research side," Williams says. The increased European presence with the HypoVereinsbank deal and the opening of the London office represents another major event in the firm's spectacular growth over the past few years. Named the BE Financial Company of the Year in 1999, Williams Capital has remained one of the "Big Three" New York-based African American investment banks by demonstrating a mix of hustle and expertise. In fact, the firm has served as lead manager on $1.7 billion in transactions and co-manager on bond deals involving AT&T Corp., Wal-Mart and Goldman Sachs & Co. over the past year (see "A Rising Tide," June 2000).

In some ways, the Williams Capital-HypoVereinsbank deal was a long time in the making. "They've been lending us money for a couple of years," Williams says, explaining that his company had a credit facility with HypoVereinsbank.

Whenever Williams Capital underwrote large investment banking deals, it would borrow money from HypoVereinsbank by drawing on a revolving line of credit. The funds helped Williams Capital meet regulatory capital requirements, and the firm would later pay off the loan.

As a result of the lending arrangement, HypoVereinsbank executives got to see regular financial statements from Williams Capital. After witnessing Williams Capital's growth over time, HypoVereinsbank officials decided they wanted to expand the relationship.

Ultimately, says Williams, "we determined that a 15% stake was an amount large enough to De meaningful from their standpoint but small enough to not limit this office's strategic options."

The Williams Capital-HypoVereinsbank transaction also continues the trend of minority-owned firms partnering, for strategic purposes, with larger financial services entities. For example, Bear Stearns & Co. once had a 17% equity stake in Blaylock & Partners, and Merrill Lynch & Co. was an original investor in Utendahl Capital Partners. Moreover, not long ago, Jefferies & Co., which provided some start-up capital to Williams, had a 19% interest in Williams Capital. In 1998, Williams bought back the Jefferies stake.