FTN Financials move last week to acquire the assets and operations of the fixed-income business of Spear, Leeds & Kellogg, a division of Goldman, Sachs & Co., will result in a larger customer base for its sale of municipal securities.
FTN, the capital markets division of First Horizon National Corp., is active in underwriting, while both are active in the secondary market trading of municipal bonds. FTN, started out as a prominent municipal firm in the 1930s and later added other products, including mortgage-backed securities and home loans said president and chief executive officer Jim Hughes in an interview late last week.
With the addition of Spear Leeds, we will enhance that with a new group of clients, he said, alluding to potential muni investors that will be added as a result of the acquisition. Hughes added that both have different institutional customers and as a result there will be little overlap when the two groups are pooled together.
The road to a signed deal began in mid-summer 2004 when officials at Goldman Sachs called officials at First Horizon, along with a number of other potential bidders, to advise them that the firm was considering selling the Spear Leeds division, and to gauge their interest in the company, said Mark Medford, chief operating officer of FTN, in an interview late last week.
FTN indicated that the fixed-income business of Spear Leeds complemented its business. In its evaluation of the business, FTN wanted the profit margin to be similar to that of its internal model, Hughes said. The firm also wanted a business with a strong distribution network and a limited staff turnover rate, he added.
FTN currently has about 3,500 institutional customers. At the close of the deal it will have about 5,000.
Most of our acquisitions take place when the fixed-income industry is struggling, Hughes said. At those times, the firm looks for opportunities to add to its headcount. In this instance the opportunity arose when Goldman decided to sell. This is FTNs second acquisition in four years in 2001, it acquired Midwest Research.
After preliminary talks with FTN and about four other undisclosed bidders this summer, Spear Leeds entered into exclusive negotiations with FTN just after Labor Day, when Goldman Sachs selected the firm as the sole negotiator, Hughes said. The definitive agreement was signed on Thursday and the deal is set to close by year end.
The combination of our sales and trading depth with FTNs outstanding distribution and research will create a powerful competitor in the fixed-income market, said William J. Kenney, co-chief executive officer of Spear Leeds.
FTN expects to retain all of FTN and Spear Leeds employees at their current offices, while some senior Spear Leeds management may relocate to FTNs Manhattan offices, the statement said. FTNs current senior management will continue to run the company, with the addition of senior executives from Spear Leeds.
