Now that Michael Butler has broken into the $400 million category, his sights are set on deals in the $500 million to $1 billion range.
After spending years working at big-name Wall Street investment banks, Michael Butler returned to his hometown of Seattle in the late 1990s intending to enjoy a more laid-back lifestyle and to help small technology companies raise money.
Neither plan went as expected.
Shortly after Butler and a business partner formed Cascadia Capital, the tech bust smashed their plan to take part in the region’s venture-capital frenzy.
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Cascadia shifted gears to focus on more traditional investment banking for more traditional industries, and Butler was forced to go outside the Pacific Northwest to find deals. Cascadia now has an office in New York and dozens of employees helping canvas the country for clients, but Butler still spends at least one day a week on the East Coast.
About 90 percent of the firm’s business comes from outside this region, including two of three deals announced this week. One was the $400 million sale of Lenel Systems International, a security systems and software developer, to the Hartford, Conn.-based conglomerate United Technologies.
It is the first time Cascadia, which represented Rochester, N.Y.-based Lenel Systems, has done a deal above $100 million.
Chairman and CEO: Michael Butler
Business when founded: Raising venture capital for early-stage technology firms in the Pacific Northwest
Business now: Traditional investment banking, including handling mergers and acquisitions, giving strategic advice and providing equity and debt capital-markets services for middle-market companies nationwide
Industry specialties: Information technology, security and defense, health care, telecommunications, packaged goods, natural resources
Source: Cascadia Capital
And it did not come easily: “It was a very difficult process with heavy negotiations,” said the 44-year-old Butler. “My team took 13 or 14 red-eye flights to Rochester, almost one a week. And red-eye flights from Seattle to Rochester are not direct.”
Boutique investment banks like Cascadia work with smaller companies on smaller deals than their big-bank counterparts. Many of their services are the same — giving advice and helping clients find financing — but a typical boutique firm does not have the deep pockets to invest in equity and debt deals, as large investment banks do.
Now that Butler has broken into the $400 million category, his sights are set on deals in the $500 million to $1 billion range.
Butler initially used his own experience, contacts and pedigree — including eight years at Morgan Stanley and four years at Lehman Bros. — to attract a small group of investment bankers to help him build a client base and Cascadia’s reputation.
It was slow going, particularly given the difficult economy. But they generated enough business that by the time the economy improved and banks became more willing to make loans needed for many acquisitions, Cascadia was ready to grow.
Last summer, it opened a three-person New York office. That outpost already has grown to nine employees, with plans to hire more soon.
Butler also intends to open a small office in San Francisco and a full-service office in London over the next 12 to 18 months. The London office will help handle cross-border transactions for U.S. clients and move Cascadia into growth markets like Eastern Europe.
During the past year, he has more than doubled his total staff to 50 employees — 44 of them bankers. They include several Wall Street veterans who prefer working for a boutique investment bank to selling for big bureaucratic investment houses with thousands of employees.
“Investment bankers are getting fed up with Wall Street,” Butler said.
Jon Fitzgerald, a 16-year investment banker who worked in New York and London, moved to Sun Valley, Idaho, last fall to give his family a change of scenery and to begin as a managing director at Cascadia in Seattle.
“It became evident to me that the traditional investment-banking model had changed markedly, and it wasn’t the environment I enjoyed a few years ago,” he said.
At Cascadia, Fitzgerald expects to get more credit for the business he generates and not have to worry about competing with the financial giants that make loans to companies in return for a first look at investment-banking business.
Over the past decade, megabanks such as Citigroup and Bank of America have become adept at offering old-fashioned commercial loans as well as investment-banking services to large clients.
Fitzgerald also enjoys working with smaller companies, which he considers the engine of the U.S. economy.
“The vast majority of my career was spent talking to governments and multinational corporations, the biggest users of the capital markets in the world,” he said. “Now I’m talking to smaller and much more dynamic companies that have a very different relationship to bankers.”
Cascadia’s clients notice the difference as well, because they receive more attention from the top bankers there than they would from the senior bankers at a large investment bank.
Bill Thalheimer, a consultant in New England, sold his document-authentication firm, Imaging Automation, in October with Cascadia as the company’s exclusive adviser. The price — $34.2 million — was higher than the offers obtained by large investment banks in previous attempts to sell the company.
“The large investment banks can do it, but you’re not going to get their most senior people on your deal,” Thalheimer said.
He learned about Cascadia through someone on his company’s board.
“I was a little skeptical at first, with them being a Seattle boutique-type firm, that they could reach out to the potential partners we were looking to deal with,” Thalheimer said.
As it turned out, Cascadia had the expertise and the connections. Clients also like Cascadia’s long-range view, something they say is lacking at some investment banks that will cut a deal to gain a commission even if it is not in their client’s best interest.
Phillip Meredith, CEO of Lightwave Electronics in the Bay Area, knew Cascadia was not in it just for the money when the bankers agreed Lightwave should walk away from one purchase offer, not knowing when there would be another buyer.
“We had a small retainer in place, but they would have lost money” if Lightwave was not sold, Meredith said.
Lightwave, which markets solid-state lasers, was sold this week to JDS Uniphase of San Jose, Calif., for $65 million in cash.
In another deal announced this week, Cascadia was financial adviser to Kent-based Integrated Healthcare Systems, a pharmacy-technology company, in raising $9 million.
The biggest deal in Cascadia’s portfolio — the sale of Lenel Systems for $400 million — came after Cascadia’s bankers called on Lenel for about a year, telling the owners they were in a good position to sell.
Cascadia knew buyers were looking for firms like Lenel.
“Finally, they opened up to us,” Butler said.
Lenel had received unsolicited offers that its owners rejected because they did not like the price or what a sale would mean for employees, he said.
Cascadia found the right match and put together a deal after many flights between coasts, Butler said.
Butler is aware of the complexities of being headquartered in Seattle with clients all over the country. But he stays here for his family.
“I don’t think there’s any better place to raise kids,” said Butler, a married father of four children, ages 1 through 8.
And he hopes more Pacific Northwest business will come Cascadia’s way.
“Unfortunately, Seattle is a city I work from,” he said. “I hope to work more in it.”
Melissa Allison: 206-464-3312 or email@example.com