CHICAGO — The country’s top-ranked financial advisory firm, Public Financial Management Inc., has acquired one of its leading Midwestern competitors, Scott Balice Strategies LLC, whose co-founder and senior partner, Lois Scott, took over as Chicago’s chief financial officer on Monday.
The acquisition was announced Monday.
Mayor Rahm Emanuel’s announcement last month that Scott would serve as CFO after he took office set in motion discussions with several firms and employees over the future ownership of the firm. Under city ordinance, Scott was required to sever all ties to the firm that does business with the city. Scott co-founded the firm in 2003 with corporate finance specialist Dean Balice.
“My goal was to take this extraordinary team and to provide them with the broadest possible tool box to continue to provide the services that our clients need ,especially during these challenging times,” Scott said in an interview Monday with her former partner and PFM’s Chicago group head, Jill Jaworski. “The firm that best met those objectives was PFM.”
Philadelphia-based PFM Group was among the firms that approached Scott and Balice, senior managing director, after Scott accepted the CFO position. Her job officially began Monday when Emanuel was sworn in, replacing the retiring Richard Daley.
“We were very interested in acquiring the firm. They are a well-known and respected and talented group of professionals,” said Jaworski, a managing director who will manage the integration of the two groups. “They are our toughest competition here and their public-private partnership group is second to none.”
PFM has a handful of professionals devoted to public-private advisory work, but it has been mostly limited to transportation-related deals. Scott Balice’s background is more diverse and includes toll roads, parking structures, lotteries, social infrastructure, and state-owned alcohol beverage systems. In addition to bolstering PFM’s client list and P3 expertise, the firm will launch a corporate advisory business led by Balice, Jaworski said.
PFM will at least initially operate Scott Balice as a wholly owned subsidiary, which is designed to smooth the transition for clients that have contracts with Scott Balice. Financial terms of the transaction were not disclosed.
Scott and Balice — who were introduced by a mutual friend — decided to form the firm based here with a focus on providing strategy and analytics in 2003 after Scott’s return from a stint as a White House Fellow under President Bill Clinton. Before moving to Washington, Scott worked as an investment banker at L.F. Rothschild & Co., Donaldson, Lufkin & Jenrette Securities Corp., and later at BA Securities Inc., where she reestablished that firm’s presence in the region.
“The thought was to bring together the best strategies from the public and private side to serve our clients,” Scott said.
On the public side, Balice’s corporate banking background enhanced the firm’s capabilities in risk management, swap advisory work, public-private partnerships, bankruptcy, and restructuring. Scott’s public finance experience helped corporate clients tap governmental programs, tax credits, and other subsidies to support development, the two former partners said.
Scott and Balice slowly, but steadily, added staff to the firm and expanded its reach. Their first hire was quantitative specialist Marty Luby, followed by former Chicago Comptroller Phoebe Selden. The firm now employs about 20 professionals in offices in Chicago, Alaska, New Jersey, New York, and Ohio.
PFM has offered jjobs to all Scott Balice employees and most have accepted. Tim Carden, Julia Harris, and Tom Morsch will become managing directors and focus on building PFM’s national P3 business.
The team will eventually move into the PFM offices in Chicago, which now house eight professionals. About half work in the firm’s public finance practice and the others work in its asset management unit.
PFM first established a physical presence here in August 2006, adding to its Midwest public finance offices in Des Moines, Cleveland, Milwaukee, Minneapolis, and Ann Arbor, Mich., but it was not until its hiring last spring of Jaworski that it employed a local public finance advisory professional. Jaworski has since hired several analysts and former Chicago budget director Bennett Johnson 3d.
The Ann Arbor and Milwaukee offices were opened several years before Chicago and the Minneapolis operation grew out of PFM’s 2003 acquisition of Evensen Dodge. Some former Evensen professionals have complained over the change in the firm’s culture. Scott said the merging of two corporate cultures is a common challenge in such situations but she believes the “culture is very compatible” between the two, given the discussions that led to the transaction.
PFM since at least 2007 has had a lock on the top spot nationally among advisers. It closed out last year having advised on 988 deals valued at $57.5 billion. It stands in first place so far this year, advising on 206 deals valued at $8.3 billion. Scott Balice cracked the top 10 last year, advising on 75 deals valued at $6.2 billion, and it is eighth so far this year.
In Illinois, Scott Balice has led the pack among firms advising Illinois issuers since at least 2007. The firm last year advised on 62 deals totaling $4.4 billion compared to PFM, which ranked fifth advising on $2.2 billion worth of debt in seven deals. Scott Balice ranks second so far this year in Illinois.
In the Midwest, PFM held the top spot among advisers while Scott Balice finished second last year. Scott Balice ranked 2nd advising on $4.7 billion worth of issuance in 66 deals. It trailed PFM which advised on 307 deals worth $8.7 billion. Scott Balice ranks 2nd so far this year among firms while PFM ranks 3d.
Scott said she was still finding her way around her new offices Monday following the inauguration but expects to draw deeply from the well of public finance expertise to address the city’s fiscal challenges including an operating deficit of at least $580 million. Sources said she had already begun reaching out to bankers for ideas on dealing with the city’s mammoth unfunded pension obligations. “I’m always interested in ideas,” she said.