Reason to believe: National Financial Partners Chairman Jessica Bibliowicz has no doubt that better days lie ahead for her firm.
In November, Jessica Bibliowicz was in crisis mode, but in an interview with Best's Review on Nov. 25, her faith in her company never wavered.
This month, the company that Bibliowicz leads, National Financial Partners, is 10 years old. She joined NFP in April 1999 as president and chief executive officer and has since added the title of chairman. During her interview, Bibliowicz recounted the company's accomplishments and presented a vigorous case for why it would survive the economic crisis that has hit not only NFP but all kinds of financial services companies, especially hard.
A day earlier, NFP stock closed on the New York Stock Exchange at $1.03 a share, down 97.7% from a year earlier. "I've never sold a share in this company," she said. "I've bought the stock. I'm a great believer. I feel the pain, too, and I think everybody knows that. And that's how I believe it should be for a CEO."
NFP is a national network of owned and member independent financial advisers specializing in life insurance and wealth transfer, corporate and executive benefits and investment advisory services. It came into existence on Jan. 14, 1999, with $125 million of seed capital from private equity firm Apollo Management L.P., and now has more than 180 firms and about 3,200 employees.
NFP wholly owns the firms, but the principals become independent contractors that own NFP stock and annually pay NFP, on average, 50% of contractually calculated target earnings before compensation paid to principals. NFP and principals share earnings in excess of targets.
"We always wanted to be a strategic partner to the firms, not just the financial buyer," said Bibliowicz. "With the help of Apollo, we developed a model for the acquisition that was nice for the firms on day one, but more importantly, we continue to reward them for the continued growth of the business," she said.
"Our model has proven that when you focus on the distribution side--the clients--you're able to draw from a multitude of product manufacturers, and you deliver service, open architecture and a conflict-free, independent environment."
NFP's scale provides member firms the clout to offer life products from 14 primary carriers, to benefit from underwriting relationships and to diversify life insurance coverage in large cases among Several writers. It enables benefits firms to bring large-company service support to the small and mid-sized corporate markets. The company also helps firms to function better during changes in product cycles, to acquire other attractive firms, and to plan for succession, Bibliowicz said.
Excerpts from the interview:
Q These days, when people may be demoralized and disheartened, what do you do as leader of the company?
This is when you need leadership the most. And so what I do is spend as much time as I can with the firms, talking with them, talking about the issues--issues that are real and those that are perception. And what we can all do together. Also in these times, leadership means thinking out of the box. You need to look at the business and the environment you're in and ask what you can do to make it better.
We are focused on the things we can control and are taking prudent steps to give us the financial flexibility to weather these difficult markets. We've initiated discussions with our bank group to get temporary relief on the covenants of our credit line in case the environment gets worse than it is today, even though we are not out of compliance with any of our covenants. Also, we stopped paying dividends. We stopped acquisitions and became internally focused, enhancing the great subsidiaries we have. We stopped buybacks of stock. We also cut corporate expenses by 10%, for 2009.
These steps were not necessarily well-received in the market. I understand that. I think they should have looked at it much more positively. But I can't control all that. But we can do the right thing for the people that have entrusted their business to NFP. Creating that sustainability in a very uncertain time is absolutely the right thing to do. And I think our firms are learning and understanding that if you pay attention to that part of it, something they're very focused on, they will be even better partners emerging from this. But the road between here and there is lots of conversations, discussions and ideas.
What about NFP employees?
We cut our employees in New York by 30%. There's nothing that I hated doing more. I'm grateful to all the employees because they're working twice as hard now. We weren't really a very fat company to begin with. We were always running lean. So folks ate doing triple work, but without the acquisitions, it's a little easier on us.
What kind of situation are the principals in?
These are businesses that will generally perform well in these kinds of environments. Companies are still buying health and welfare. The 401(k) plans are in place. Life insurance is harder to sell, but it gets sold. So about 70% of the firms owned for 12 months or more are within or above 85% of their target earnings. We do have more firms that are in base deficit, where they are below their base earnings. Our job as partners is to get them every resource that NFP can, to help them out. They are much better off with us than if they were on their own. And then sometimes you just have to restructure the deal to get back to where the principals can earn money. We've done this. We've worked with firms over the years that have gone into and out of this base deficit situation who have been some of our very best firms.
Would you have been better off if you had not gone public?
Going public was part of the plan from the outset. It was a way to help Apollo liquefy its position, and having stock that was formerly private traded publicly helped all principals as well. We always treated the company as a public company. That was the highest standard. We always have to think about where we are and do the best possible job for shareholders.
Pressure on the markets today is unprecedented. I believe that our franchise is incredibly valuable. Remember, our cash earnings per share were 58 cents in the third quarter. On an adjusted basis, our operating cash flow was $38 million. We want to be protective of our credit facility, we want to pay down debt and run the company as conservatively as possible. It is a very valuable franchise. I acknowledge it's not recognized that way, based on the stock price, but we believe it's a pretty big dislocation. And we'll work our way through it.
Are you sleeping at night?
No. I'm not. And you don't want me to. The management team and the principals are very focused, and we're doing everything we can to move the franchise ahead. It's stressful, but I've never been more committed to anything. When you believe in it as I do, when you've been engaged with every one of these entrepreneurs, and you know the businesses, and you know how capable they are and how driven they are, it's an act of pride. So you're distressed over the loss of value, there's no question. And you focus on building it back. And that's where we are.
Can you envision some path to emergence from this tough situation?
Yes. As people realize that we did the right thing on the financial side and that we were proactive, and that we continue to move forward, that will be a plus. And I really believe that our firms will continue to focus on their businesses and that we will earn, literally earn from earnings, the right to the reputation that we deserve. That's what it is all about: performance, execution, preserving capital, and the most important thing that our businesses do, which is serving their clients. That's our focus. We will definitely prevail. We have the right people doing it. We have the right focus on the internals right now to make that happen.
What about outside factors, things you can't control? What would you like to see?
For us, we're a financial services company, small cap, so you know when there is a firestorm around financial services, we're going to be swept with it. For us, the strength and financial position of the carriers, the life insurance and benefits companies, that is obviously very important to us. We're working very closely with them and we're monitoring them. That's a very important component for us. We've focused on the business of our business. So if you look at our balance sheet and our assets and our firms, we absolutely know there was no straying; we're very, very clean and focused about it. These are very tough times, and earnings can come down, and they have, and they do, so you've got to be as conservative as you can to ride it through.
* Chairman 2003-present; CEO and President 1999-present
* Shares owned in NFP: 167,464 (as of Nov. 16, 2008)
* President, John A. Levin & Co., a registered investment adviser
* EVP & Head of Smith Barney Mutual Funds
* Director, Asia Pacific Fund Inc.
Member, Board of Directors, Riverdale Country School, New York City
* Member, Board of Overseers, Weill Cornell Medical College and Graduate School of Medical Sciences of Cornell University
* Education: A.B., Cornell University
* Father: Sanford "Sandy" Weill, former CEO and chairman of Citigroup, Primerica and Travelers
Timeline: NFP National Financial Partners
Formation and first 50 acquisitions, mostly in life insurance. Includes Partners Financial, a significant purchase.
Diversified acquisitions, including benefit brokers serving small to midsize corporate clients and investment advisers. Recurring revenue picks up.
Initial public offering.
Purchase of Highland Capital, a large life insurance brokerage.
2006-07 Active in acquisitions, primarily benefits and investment advisory firms.
Big increase in recurring revenue.
NFP encounters economic headwinds, focuses on building up subsidiaries and company sustainability.
How the NFP Business Model Works
NFP buys 100% of an independent firm.
Valuation is based en 50% of firm's earnings.
NFP typically pays five to six times the calculated valuation
Principal takes at least 30% of purchase in NFP stock and becomes independent contractor of NFP.
Typically, NFP has annual priority on 50% of a firm's earnings before principal's compensation NFP refers to its preferred interest as "base earnings."
Example: An NFP-owned business has revenues of $5 million and expenses of $1 million.
Annual "target earnings" is $4 million. NFP gets its $2 million base earnings and the principal earns his or her $2 million management fee for running the business if revenues after expenses drop to $3 million, NFP gets its $2 million preferred interest and the principal gets his or her $1 million management fee. If revenues exceed $4 million, NFP and principal share those amounts. NFP provides support and capital for expansion, along with principal incentives.
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|Title Annotation:||Life: Profile|
|Date:||Jan 1, 2009|
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