Toys In Deal Land
With little in the way of dealmaking these days, bankers stroll down memory lane with unique mementoes of deals past.
By Aleksandrs Rozens December 1, 2008
Just because M&A has dried up doesn't mean it can't be remembered fondly.
Not long ago, when deals actually got done--say, in 2007--bankers had their special way of celebrating the close of a transaction. Deal toys, also known as Lucites or tombstones, have long been a Wall Street fixture. And while new toys are few and far between in the current environment, the old trinkets still clutter up desks on trading floors, window sills of managing director offices and spare nooks in conference rooms.
For many, the deal toys carry a variety of memories, whether it's experiences shared with a corporate client or an inside joke shared with colleagues about a tough assignment.
Gregory Milmoe, a partner at Skadden Arps, has been involved with some of the biggest bankruptcies and out-of-court restructurings--Mirant, Revlon and Vlasic, among them. But his favorite deal toy is one that summons up memories of his firm's work on the 2005 bankruptcy of Refco, when Skadden represented the now-defunct brokerage.
There is nothing elaborate about the Refco deal toy, and typically Milmoe would not get much involved with even creating a Lucite. But in this case the memento was created for Skadden staffers, making light of unusual developments on the case and alluding to one of the firm's more creative arguments presented in court.
"This one is a bit humorous. It is poking fun at ourselves," says Milmoe.
Milmoe's tombstone has a picture with an old fashioned printing press producing securities. Also, the tombstone lists Skadden as counsel and restaurant in the workout.
The joke?
Amid the complex Refco bankruptcy process in a New York court, it was determined that securities held by Refco as collateral were bogus. The CFO of Bawag PSK, an Austrian bank, had been busy printing up fake certificates representing hundreds of millions of dollars to be used as collateral for loans.
The bizarre case of fraud came to light while Refco was in bankruptcy, and had little to do with the actual court-supervised workout, but it was a source of humor in an arduous case. "It was a side show," as Milmoe puts it.
As for the restaurant reference, Milmoe recalls that it alluded to an argument made before the judge overseeing the case. "We were trying to demonstrate that as a matter of law Refco was not a broker. It was not a securities broker even though it did hundreds of thousands of securities transactions every year," says Milmoe. "Our analogy was that while Skadden serves thousands of meals each year to employees and clients, that does not make us a restaurant. Those are services ancillary to our principal business."
Judge Robert Drain didn't buy the argument, and in handing out his tombstone to colleagues as well as others involved with the Refco case at a cocktail party, Milmoe wore a chef's hat.
"Lawyers usually don't make tombstones. In restructuring deals there is not enough money to pay for such frivolity," says Milmoe, who paid for his Refco deal toys.
From simple to elaborate
Wall Street dealmakers have long celebrated the closing of transactions with a memento. Indeed, veteran dealmakers recall seeing deal tombstones in the early 1960s.
Most are made of Lucite and the early deal memorabilia typically were nothing more than a card pressed in between two Lucite pieces. Later, the first page of the prospectus was dropped into a tombstone--usually a clear piece of plastic that had the transaction's terms and listed banks involved with the offering.
Deal toys have been used to celebrate everything from the completion of an initial public offering to the sale of debt securities such as corporate debt or bonds pooling consumer debt. Of course, mergers and acquisitions have also been enshrined in these Wall Street trophies.
These days, many transactions are still celebrated with simple plastic blocks, but the transaction memorabilia has gotten more elaborate. Wall Street's deal toys are no longer just plastic, they are wood or pewter and have lights as well as sound thanks to computer chips.
A Google deal, for example, used a Lava lamp, while a film production company deal was feted with a miniature reproduction of a movie theatre. The elaborate theatre display's seats even had cup holders and a tiny movie screen was specially lit to highlight the terms of a deal. Meanwhile, a transaction for a billboard company was celebrated with miniature figures--men working on scaffolding.
Real estate deals involving hotels have been memorialized by tiny pewter reproductions of the buildings being financed. In some cases the buildings' doors open to reveal terms of the deal.
Often, the deal toys salute a company's product. A memento for Harley Davidson, for example, has a sound chip of a motorcycle engine. Energy or exploration companies celebrate transactions with miniature oil barrels complete with oil inside, while a convertible bond deal for Wynn, the casino operator, is celebrated with a working playing-card dispenser.
The mementoes initially were used by bankers to celebrate IPOs and secondary equity issues. But in recent years, many of the toys were used to celebrate various securitizations of consumer loans in asset-backed bonds. Toy cars, for example, commemorate an auto loan-backed bond.
But the practice of celebrating the completion of a transaction with a tombstone was also adopted by mergers and acquisitions bankers.
"These started with initial public offerings and then the M&A guys got into the gag," says Milmoe. "They often reflect the sense of humor of the person distributing them."
Not off the shelf
It's one thing to go to the toy shop to buy a game of Connect Four, but quite another to find a mini replica of an upside down Heinz ketchup bottle with transaction terms.
Enter New York-based The Corporate Presence, which specializes in these gadgets and has deal toys ranging in price from $25 to as much as $200 each.
The company was started in 1981, and was bought by a former M&A banker, Jeff Sehgal, in 1995. Sehgal got his MBA at Wharton in 1988, and after a few years of working as a banker he wanted to manage his own company. "I wanted to get involved in operations and challenge myself in running a business," he says. "It started in the US as a New York concept. [But] it transcended the contiguous US," he says of the deal toy past time.
Since buying the company, Sehgal has grown his business' international presence. As an M&A banker involved with cross-border deals, Sehgal realized that the practice of giving a client and any other participants involved in a deal some sort of memorabilia could be brought overseas. He has opened doors in London, Paris, Hong Kong and Tokyo. "London was the first international office. That was a validation that not only bankers wanted it, but it is important to clients," he says.
In the US, Sehgal's firm has offices in Chicago, Los Angeles and San Francisco, the latter of which draws a steady flow of business from venture capitalists who seed companies and take them public or sell them.
Sehgal says the use of deal toys overseas has the same purpose for bankers: "brand reinforcement" with a client. The deal toy, he says, is "part of the culture of investment banking."
The international uptick is likely the result of more US bankers being stationed overseas to build up banking groups in European and Asian markets. Indeed, The Royal Bank of Scotland celebrated a multi-billion dollar deal financing special aircraft for Britain's Royal Air Force with 154 deal tombstones earlier this year.
Of course, the global M&A slowdown means fewer of these toys are getting passed around. In the first nine months of 2008, 11,400 debt and equity deals were completed--down from 17,938 deals in the first three quarters of 2007, according to Thomson Reuters.
The biggest drop in the bond market has been in bonds backed by home loans. Worldwide, the number of these deals in the first three quarters of 2008 were a third of what they were in the first nine months of 2007. The pace of transactions was also down for M&A, where $500 million to $1 billion deals fell from 246 in 2007 to 141 in the 2008.
"This year is the biggest challenge because the financial firms around the world are feeling the effects of a downturn," says Sehgal. While his revenues for the fiscal year ended Sept. 30 were flat to slightly higher, Sehgal has seen a drop in deal toys related to debt issues and M&A transactions. That said, his firm owns a factory to manufacture its deal toys, enabling him to cut costs for his banker clientele.
Meanwhile, not only are there fewer deals to celebrate, the number of Wall Street firms that would celebrate deals has been diminished. Bear Stearns, a major player in the mortgage debt and asset-backed markets, closed its doors in March and Lehman Brothers, a major presence in M&A and securitization, declared bankruptcy in September, while Merrill Lynch agreed to be absorbed by Bank of America.
Sehgal says his firm was a leading vendor to Lehman and Bear Stearns. He has worked with Barclays, which bought Lehman's investment bank in September, in various offices the British bank has worldwide. "We have seen a drop in tombstones for public debt and equity deals," says Sehgal.
'I'll always remember the first one'
Fred Joseph, the former CEO of Drexel Burnham Lambert who now runs boutique firm Morgan Joseph, still has his collection of deal memorabilia, which has hundreds of pieces. "I've been at this for 45 years. There's tons of relationships represented in these," says Joseph.
The veteran banker says his favorite deal toy is a Lucite block celebrating an IPO. Joseph was a junior banker on the deal at EF Hutton, just out of Harvard with his MBA. Inside the Lucite for the 1960s transaction is a miniature of the IPO's prospectus. "They don't have as much meaning as that one did. That was my first one," says Joseph. "My poor secretary has to dust them off from time to time."
Rich Byrne, CEO of Deutsche Bank Securities, meanwhile, has other reasons to keep his deal mementoes around. He saved several to remember transactions for Trump Casinos. Taped on those deal toys were business cards of two Trump executives--Steve Hyde and Mark Ettis--who perished in a helicopter crash.
Byrne, who has specialized in the casino and gaming industry, also kept tombstones for companies run by client and friend Arthur Goldberg, Bally Manufacturing, which later became Park Place Entertainment. "He rebuilt a struggling company that was near bankruptcy. Unfortunately he did not live long enough to see his mission all the way through," says Byrne.
While it's true that various public works and great feats in corporate America have been commemorated with silver plates or platters and ornate shovels, for some the allure of the toy has faded. For some, the toys may have never held much importance, and still others admit they have become an encumbrance.
Hal Ritch, a longtime banker with DLJ and Citigroup who co-founded boutique firm Sagent Advisors, says he no longer holds on to his tombstones. He tossed them out after he got tired of shuffling them around from office to office. "I don't order them for myself any more. I just say, 'Count me out,'" says Ritch, adding that he lets others at his firm order the deal toys for themselves and for the firm's banking team.
Thomas Priore, CEO of ICP Capital, meanwhile, never had any need for them, seeing the knick-knacks as a waste of time and money.
"It's like a trophy for doing your job," says Priore. "You know what the ultimate scorecard is? It's your profitability and the respect of your clients."
(c) 2008 Investment Dealers' Digest and SourceMedia, Inc. All Rights Reserved.
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