Can Robert L. Johnson Do for Investment Banking What He’s Done for Media, Private Equity and Hotel REITs?
The RLJ Way: Vision, strategic capital (like John Malone in BET) and talented management
Just about anyone with a track record in M&A can put up a shingle and call the new firm an “investment bank,” but very few people can build a full-service, large organization capable of competing with the well-established banks that have been serving the middle market for decades. Robert L. Johnson may well be that rare dealmaker who has what it takes. Over the summer, the RLJ Companies launched a new investment bank called RLJ Capital Markets. Johnson brings a wealth of experience and a slew of relationships to bear, having spent the last 37 years developing successful companies in a wide range of industries, including media, real estate and private equity.
Johnson says he deploys the same strategy for building businesses today that he initiated in 1979, when he pioneered Black Entertainment Television (BET), the first television network to focus on African American households, with a $500 million investment from John Malone, then CEO of Tele-Communications Inc. (TCI). The strategy is simple, Johnson tells Mergers & Acquisitions: “Come up with a vision and an idea of what you can achieve, bring in strategic capital, like John Malone in the case of BET, and populate it with talented management.” (See timeline of Johnson's career.)
Johnson has used the approach many times over the years. “When I went into the auto dealership business, I partnered with Mack McLarty, Bill Clinton’s former chief of staff, who had expertise in autos. When I built a hotel real estate investment trust that trades on the New York Stock Exchange, I pulled superior management in Tom Baltimore, who now heads a $10 billion REIT for Hilton. When I went into private equity, I partnered with David Rubenstein at the Carlyle Group.”
In the case of RLJ Capital Markets, Johnson is teaming up with Roth Capital Partners LLC, an established investment bank that focuses on emerging companies and the small and midcap public market. The partnership with Roth gives clients of RLJ Capital Markets a network of experienced industry advisers, as well as sales, trading and research platforms. The investment bank provides resources in underwriting and placing equity and fixed income offerings, sales and trading, research and corporate access for institutional investors.
While Johnson’s experience and connections will certainly go a long way toward opening doors for RLJ Capital Markets, developing the business will be the day-to-day challenge of two managing directors. Eddie Polite hails from Roth and is serving as the CEO of RLJ Capital; and Ernita Thomas, a veteran of the RLJ Companies, is serving at the bank’s chief compliance officer. Prior to Roth, Polite was responsible for the execution desk at Montgomery Securities; was named the youngest managing director while at Mabon Securities; and was responsible for setting up and building out the trading desk as director of trading at Global Hunter Securities. A senior vice president and controller of the RLJ Companies., Thomas has experience in various financial functions, including managerial and financial accounting, regulatory reporting, budgeting, corporate compliance, planning and forecasting. Before joining RLJ, Thomas was an assistant controller at Freddie Mac, where she provided reporting and credit analysis related to securitizations and mortgage guarantees. Prior to that, Thomas worked for ten years in a variety of financial roles with the Carlyle Group.
Initially, RLJ Capital Markets will concentrate on sales and trading, then focus on raising capital for small-cap public companies from institutional investors and then build M&A over time, explains Byron Roth, CEO of Roth Capital Partners. RLJ Capital Markets will continue to focus on the sectors that Roth serves, including: business services; consumer; health care; industrial growth and cleantech; resources; and technology and media.
“Media is certainly going to be something that we will focus on, because of my background and my relationships,” says Johnson. “Most media executives, in old media and in new media, know me on first-name basis and vice versa. The relationships I have with Fortune 100 companies and the CEOs that I know personally, including those I know from serving on the Business Council, give us opportunities to play in other levels of trading and investment banking.”
Johnson also has relationships with many middle-market dealmakers through RLJ Equity Partners, the PE firm, and through RLJ Credit Opportunity Fund, which makes senior debt and subordinated debt investments in lower middle-market companies.
For example, Harris Williams & Co. has had a strong relationship with RLJ Equity Partners over the years and has worked with the firm on multiple occasions, including its 2015 sale of the Fleischmann’s Vinegar Co. to Stone Canyon Industries. “We look forward to a continued relationship on the private equity side and wish them well on the new investment banking venture,” says Brian Lucas, a managing director.
New full-service investment banks are rare. Most of the ones that serve the middle market have been around for about 25 years or more. Harris Williams was founded in 1991. William Blair & Co. traces its roots back to 1935. Lincoln International, in its current incarnation, was formed in 1996, but its history dates back a decade earlier. Even the younger successful middle-market investment banks, such as Centerview Partners, have been around for a decade.
Even less common are investment banks owned by African Americans. One exception Johnson mentions is the Williams Capital Group, LP a full-service investment bank catering to both institutional investors and corporate clients. It was founded in 1994 by Christopher Williams, who previously formed a derivatives division of Jefferies & Co. and worked at Lehman Bros. Another is RedTail Capital Markets, founded in 2013 by Anthony Caudle, who previously held senior executive leadership positions at firms, including American Express and Comerica Bank. And another is Loop Capital, a full-service investment bank, brokerage and advisory firm headquartered in Chicago and established as a municipal bond firm in 1997, co-founded by Albert Grace and James Reynolds, who serves as CEO.
“Trillions of dollars are at work in the flow of capital, and people get paid for the ability to make that capital flow from one entity to another,” Johnson explains. “Minorities and women are grossly under-represented in that movement of capital. We want to always be part of the system. We want to get our share of the flow of capital, based on the quality of our talent.”
Johnson is no stranger to paving the way for minority groups. When BET went public in 1991, it was the first company owned by an African American to trade on the New York Stock Exchange. When he sold BET to Viacom Inc. (Nasdaq: VIA) for $3 billion a decade later in 2001, Johnson became the country’s first black billionaire.
BET is a “great institutional success story of black people coming together at the emergence of a new technology,” Johnson told Black Enterprise in 2013. “There was a technological shift coming about in satellite and cable, and we were able to take advantage of it.”
When asked where he sees RLJ Capital Markets in five years, Johnson responds, “When I did this with BET, my goal was to break even and make some money five years in. But for the investment bank, five years from now, I hope we’re making money for our customers and ourselves. But I also hope that when firms are looking for trading advice, execution and investment banking, they’ll be told, you’ve got to talk to these guys at RLJ Capital Markets. We want to be a pre-eminent name on everybody’s short list.”
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