This Razorback Is Picking Up SpeedWendy Zellner
The Little Rock investment banking firm Stephens Inc. likes to throw its weight behind winners--both in business and in politics. Chief Executive Officer Warren A. Stephens and business associates have given Arkansas Governor Bill Clinton more than $100,000 for his Presidential campaign. With the Democratic nominee ahead in the voter polls, that would seem like a good bet.
Don't think, however, that a Clinton victory would automatically bring a bonanza of new business to this privately held, family-run firm that has long been identified with the Arkansas power elite. The Stephens family has had an often contentious relationship with Clinton during his 12 years as governor. What particularly irked Jackson T. Stephens--the firm's chairman and Warren's father--was the 1985 establishment of the Arkansas Development Finance Authority, which was the centerpiece of Clinton's program to attract new businesses and jobs to the state. The elder Stephens denounced it, and he even went so faras to back Clinton's unsuccessful opponent in the 1986 gubernatorial election.
True, the Stephens firm has participated in more than 70% of the authority's bond offerings. But only in a handful of issues has Stephens been the lead manager--the firm that makes most of the money in an underwriting. "Clinton opened the market up and made them compete for the business," says James B. Blair, general counsel of Tyson Foods Inc., a long-time Stephens client. Even CEO Stephens admits: "We've lost a significant portion of state business."
But despite the loss, the firm has continued to prosper. It originally rose to riches and prominence by backing such local success stories as Wal-Mart Stores, Tyson Foods, and J.B. Hunt Transport Services. In recent years, it has managed to play to its strength of personalized service to win corporate financeand municipal bond business well beyond Arkansas.
`JAWS.' Since taking the top job in 1986, 35-year-old Warren Stephens has opened small investment banking offices in Atlanta, Dallas, Houston, San Antonio, and Kansas City, which he uses to prowl for midsize corporate clients and public finance deals. Since the firm lacks retail branches of its own, he also has been offering brokerage services through banks. Some 240 banks in 21 states, including Wells Fargo & Co. and NationsBank Corp., now turn to Stephens for brokerage clearing and support services. And he is hunting for new niches, too. His latest: handling money management, endorsements, and contract negotiations for professional sports figures.
"We're much more aggressive. Before, we just let the business walk in the door," says Alison P. Bisno, Stephens' research director. The firm's revenues last year climbed about 25%, to $125 million (chart), while employment has more than doubled, to 535, in the past six years. Better yet, claims CEO Stephens, pretax profit margins remain "significantly" above 15%, vs. an average 12.2% for other regional securities firms.
Not bad. But Warren Stephens still has a long way to go to fill the legendary shoes of his father and of his uncle, Wilton R. "Witt" Stephens, who died in December. From humble Arkansas farm roots, brothers Jack and Witt--whose initials, JAWS, became their nickname among critics--built a family fortune that has been estimated by outsiders at more than $1.7 billion and a network of contacts that included Arabian princes and American Presidents. At one time, the two brothers held sway as kingmakers in Arkansas who could make or break governors and shape legislation to protect their interests.
But the new generation at Stephens Inc.--including Witt's three children--knows it can't count on back-room deals. Warren Stephens, for one, has tried to develop a higher, more public profile for the firm to help dispel the public suspicions about wealth and power in populist Arkansas. He speaks to local clubs, has held press conferences on community issues, and even hired a New York public relations firm for Stephens Inc. To foster goodwill in the company, he has been known to personally deliver a bottle of champagne to an employee's home to commend a job well done.
Warren says the firm can build on its reputation for "relationship" banking, especially with small to midsize companies. "We want to be their true financial adviser and confidant," he says, contrasting that approach to Wall Street's focus on transactions and fees.
New clients seem to like the Stephens touch. Benchmark Electronics Inc. in Clute, Tex., chose Stephens as co-manager of an $18 million equity offering in March because it felt "lost in the shuffle" with Kemper Securities Group Inc., says Executive Vice-President Steven A. Barton. The promise of close communications with Stephens' Houston office was a key selling point, he says. Stephens also has co-managed an equity offering for Henley International Inc., near Houston, and is co-managing an initial public offering for Taco Cabana Inc., a San Antonio restaurant chain.
While other regional firms can boast strong relationships, Stephens has another trump card: "Capital, capital, and capital," says Tony Brooks, managing director of Lehman Brothers. True, Stephens' capital totaled $129 million at the end of 1991, ranking it a mere 45th among U.S. investment banks. But that vastly understates Stephens' wherewithal. In 1986, the family reorganized its holdings primarily for tax reasons and shifted some $500 million out of the investment bank and into a family investment company. "If we need it, it's available," says CEO Stephens. Indeed, when the company served as sole adviser in Tyson Foods' $1.5 billion takeover of Holly Farms Corp. in 1989, the Stephens turned to the family investment company to guaranteethe underwriting of a $100 million stock offering needed to clinch the deal.
BIBLES AND BUCKLES. Although he retains the title of chairman, 69-year-old Jack Stephens has relinquished day-to-day control. Still, his connections are golden. A lead from a neighbor on posh Palisades Drive in Little Rock helped the company land Phillips-Van Heusen Corp. as a client. Stephens Inc. served as co-manager in its $123 million stock offering in April, alongside Goldman, Sachs & Co. and Prudential Securities Inc. Contacts with Chicago dealmaker Sam Zell also opened the door for Stephens to manage the $41 million stock offering of the Zell-controlled Delta Queen Steamboat Co.
The elder Stephens, an Annapolis graduate, is a quiet and intensely private man. When he divorced his second wife, Mary Anne, last year, he succeeded in sealing the court records. A keen strategist, he complemented brother Witt, a master salesman who once peddled belt buckles and Bibles. Now, Jack spends most of his time on family investments and in his new role as chairman of the Masters Golf Tournament and the Augusta National Golf Club.
One thing Jack Stephens isn't doing this year--at least not in public--is beating the bushes for George Bush, as he did in the past. A Reagan Republican, he says he's "apolitical" this year. Perhaps. But the real reason for his fence-sitting, suggest some friends, is that it would be awkward for him to support Bush against the hometown favorite. If Clinton loses the race, he's still the governor and wields considerable power. Political preferences are important to the Stephens, but they don't get in the way of business.