Marcus Robbins, publisher of The Red Chip Review, a Portland-based investment guide, said National's hiring of veteran small-stock analyst Ray Dirks in New York was an important move.
"They've really spruced up the caliber, quality and number of brokers," he said. "A lot of people have been going to National -- it's a brokerage firm where they know how to work with brokers."
From the October 25, 1996 print edition
National Securities Corp. vaults from small regional brokerage to international
OVERACHIEVING UNDERWRITER
Rami Grunbaum
Despite its grandiose name, National Securities Corp. was a sleepy, low-profile stock brokerage for its first 48 years.
No more. In the past year, a new chairman and controlling shareholder has transformed Seattle-based National into a prolific underwriter of initial public offerings.
Picking small, unproven companies from literally around the world, National has orchestrated the sale of more than $144 million worth of shares in 11 IPOs so far this year. These include a Hong Kong microbrewery, a Dutch pharmaceutical distributor, and this month, an Israeli company that links computers and telephones.
An additional six IPOs worth more than $70 million await at the Securities and Exchange Commission, said National's ambitious, globe-trotting chairman, Steven Rothstein.
Rothstein doesn't deny some of National's first offerings have involved highly speculative companies with little track record. But he says the aggressive deal making is propelling the company forward.
"We're really doing these deals for the future. Some have done very, very well, and some have been a disaster. That's the business," he said. "I think we've done remarkably well for a firm that was off the radar screen a year ago."
He added, "We've begun to graduate to companies that have greater depth."
Rothstein, who continues to live in Chicago, bought control of publicly traded National Securities in mid-1995. A former top broker with Bear Stearns, the small and energetic executive constantly interrupts himself to speed-dial employees in Chicago or query passing brokers about pending deals.
Since stepping in at National, he's almost doubled the number of licensed brokers to about 200, added New York and Boston offices, and begun operations for municipal bond underwriting and European currency trading. National has kept its approach of making brokers pay their own overhead costs but offering high commissions -- Rothstein says he himself gets $24,000 a year, plus commissions.
Marcus Robbins, publisher of The Red Chip Review, a Portland-based investment guide, said National's hiring of veteran small-stock analyst Ray Dirks in New York was an important move.
They've really spruced up the caliber, quality and number of brokers," he said. "A lot of people have been going to National -- it's a brokerage firm where they know how to work with brokers."
But the push into underwriting stock offerings has been Rothstein's most visible -- and lucrative -- change.
Underwriting fees hit $6.4 million for the nine months ended June 30, up from zero the previous year. In the June quarter, underwriting generated nearly as much revenue as trading did. Results for National's latest quarter should include another healthy batch of IPO fees.
Its stock, trading this week around $8.37, has nearly tripled during the year from a low of $3.50 to a high of $9.25.
Most of the companies National took public have not done as well.
Pacific Coast Apparel Co. of Culver City, Calif., went public Aug. 28 under National's guidance. It raised $6 million at $4.50 a share, but the stock is now down 53 percent.
Integrated Technology USA Inc., the Israeli company, did even worse. It sold stock at $6 per share Oct. 3, and began an immediate decline to this week's $3.44.
Indeed, an investor who put an equal amount of money into shares of each of National's 11 IPOs this year and held the stocks would have, as of Tuesday, just 89 percent of his nest egg, according to Business Journal calculations.
Rothstein said his own figures show the National portfolio is up 17 or 18 percent for the year. That evidently includes warrants issued in several of the IPOs, as well as a convertible debt offering for one company.
The National IPOs that have done well involved two biotech companies and a physician practice management firm. Rothstein said one of the biotech deals, NeoPharm Inc., was "the best-performing IPO of the first quarter"; it's currently up 79 percent from its January issue price.
The physician management company, Complete Management Inc. of New York City, is "a major force" in its regional market, said Red Chip's Robbins.
But some of the other IPOs involved more meager operations. Last month, National raised $8.7 million for a Bermuda corporation, with headquarters in New Orleans, that operates a single "American-style" microbrewery in Hong Kong and plans to set up others in Zurich, Dublin, Budapest, Warsaw and Shanghai.
Rothstein said the upcoming crop of offerings will be stronger. "We're starting to come up with companies that have lots of earnings, lots of revenues, and therefore have more security."
Much of the deal flow is due to Rothstein's own contacts in the finance community. "I'm out in the marketplace -- I travel a lot," said Rothstein. "Tomorrow night I'm going to Paris to meet an Israeli company that has $50 million in revenues."
National's push to jump-start its underwriting career has propelled it past better-known regional underwriters such as Paulson Investment Co. and Pacific Crest Securities in quantity, if not quality.
"They've clearly taken an aggressive approach. There are definitely up sides and down sides to such an aggressive approach," said Pacific Crest's director of corporate finance, Scott Sandbo.
At Pacific Coast Apparel, chairman and founder Terrence McGovern said that National Securities "did a good job" in taking his firm public. "The stock is down at this point but I don't attribute that to National."
Rothstein said that even with National's worst-performing IPO -- New World Coffee Inc., down by two-thirds from its January debut -- he takes pride in having gotten the deal done after another underwriter backed out. At Bear Stearns, he says, "I did the deals other people failed on."
He's taking the same contrarian view toward the stock market. "I'm waiting for a bear market to grow," he declared. "I wish it would come." |
