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Isabel Zhong/ MEDILL

Mesirow Financial has been headquartered at 353 North Clark, a building with gold level certification from the US Green Building Council, since 2009.


Mesirow Financial survives and thrives

by Isabel Zhong
Dec 06, 2012



Isabel Zhong/ MEDILL

Gene Migely, director of consulting at SCORE Chicago, talks about the things businesses should do to achieve long-term growth and stability. 


“One firm. One focus.” That was the slogan crowning Mesirow Financial Holdings’ annual report in 2012 as the Chicago-based firm celebrated its diamond jubilee. One of the largest diversified financial services firms in the Midwest, Mesirow has weathered much turbulence, including the untimely death of its CEO, and achieved impressive growth during its recent history.

As news of consolidations and liquidations rocked the financial services sector during the past five years, Mesirow bucked the trend with its strong balance sheet and burgeoning top line. According to the firm’s annual reports, revenue grew 35 percent from $364 million in 2006 to $491 million in 2012. Meanwhile, assets under management ballooned more than three-fold to $61.7 billion. In contrast, many of the firm’s much larger sector peers, including Goldman Sachs and Bank of America, emerged from the global financial crisis with severely deflated top lines.

Interactive Chart: Mesirow Financial's revenues for 2006 to 2012.

 

“I think its characteristics of being employee-owned and locally focused have helped it be so robust,” said John Eade, chief executive officer of New York-based financial research firm Argus Research Group Inc. “This approach has helped the company avoid some of the major catastrophes that have occurred at firms such as Bear Stearns or Lehman Brothers.”

Although Mesirow has 16 offices that span both coasts, the bulk of the firm’s 1,200 employees are based at its four Illinois locations in Chicago, Highland Park, Oakbrook Terrace and Bannockburn. The financial services provider’s deep regional foundation gives it a competitive advantage in responding to local market conditions and opportunities, according to Eade.

“By keeping a local focus, management has been in a good position to understand the right times to invest in businesses it knows well, such as municipal finance and correspondent clearing,” Eade said.

Even though it is locally focused, Mesirow is nonetheless well diversified operationally. Founded as a single seat at the New York Stock Exchange by Norman Mesirow in 1937, the financial services provider has grown to embody 27 business units that range from private equity to public finance. By not “putting all of its eggs in one basket,” the firm had a natural hedge against business risk or fluctuations in the performance of individual units.

Moreover, “This flexibility allows such companies to pursue opportunities, even when times are bad for some of their businesses, by adjusting their investments toward more attractive projects,” business consultants Michael Dalby and Timo S. Smit wrote in the McKinsey Quarterly.

Mesirow’s well-capitalized balance sheet also provided insulation against adverse business conditions. The firm kept its debt-to-equity ratio below 25 percent during the past five years and maintained consistently strong cash holdings. This protected Mesirow against illiquidity, a leading cause for the demise of many highly leveraged finance-sector firms. In addition, being well capitalized allowed the financial services provider to better serve its clients.

“Objective advice often requires financial independence since a firm with a strong balance sheet isn't compelled to complete every possible transaction for the sake of generating fees," said Dennis B. Black, a senior managing director at Mesirow.

Adding to Mesirow’s independence is its status as an employee-owned firm. More than one quarter of its 1,200 employees have a stake in the firm’s $352 million stockholders’ equity. According to Klaus Weber, a management professor at Northwestern’s Kellogg School of Management, “Being privately owned reduces outside investor pressure for short-term and steady profits so the company can take a more long-term view.”

Employee ownership also helped the firm cultivate a strong team of dedicated staff. Mesirow has very low employee turnover with nearly one third of employees having been with the firm for more than 10 years.

“Employee ownership offers a career path and financial incentives for junior people in the company that is unavailable in publicly held companies, so it’s easier to attract and especially retain good people,” Weber said.

Mesirow’s chairman and CEO, Richard S. Price, has been with the firm for 40 years. Price was unexpectedly summoned to the helm in April last after Mesirow was struck by the tragic passing of its previous CEO, Jim Tyree, who unexpectedly died of an air embolism while receiving dialysis. Quickly picking up his late colleague’s mantle, Price further strengthened Mesirow’s renowned investment management business, growing it by 16 percent during his first full year as CEO.

“Jim Tyree had a right-hand man who worked with him for a very long time so the transition was a lot smoother than what would’ve been the case if that had not been in place,” said Andrew Rolfe, managing director of Chicago-based management consulting firm Keystone Group.

In addition, employee ownership tends to promote diligent decision making, which is critical to a firm’s long-term strength. “Because those who work at the company have their own capital at risk, they are sensitive about moving too quickly into areas that may be lucrative but risky,” Eade said.

Robert W. Baird & Co., another Midwest-based, employee-owned financial services provider, also achieved stable revenue growth during the global financial crisis. Other buoyant employee-owned firms include Publix Supermarkets Inc. and English retail giant John Lewis Partnership, which consistently recorded near-double-digit revenue growth during the past 10 years.

Mesirow and Baird also share the characteristic of being an attractive takeover target. In a sector where industry heavyweights have shown an appetite for absorbing their small- and medium-sized peers, the firms’ well-capitalized balance sheets, solid cash flows and strong positions in regional markets make them highly lucrative targets. Yet with employee ownership providing deterrence and protection against hostile suitors, neither had to fend off unwelcomed takeover bids during recent years.

However, employee ownership also has a downside. “Some firms also experience issues with ‘old’ owners that drain a lot of money out of the firm for their own gain rather than allowing the next generation to build the business,” said Weber.

Eade doesn’t think that will be an issue at Mesirow. “The company is willing to invest in multiple sources of information to educate its employees and customers about opportunities in the stock market,” Eade said.

In addition, Mesirow is consistently featured in the Chicago Tribune’s list of Chicago’s top workplaces during recent years. The firm offers employees 23 wellness initiatives “to educate, engage and empower employees to make positive lifestyle choices.” These include a smoking cessation program, an on-site fitness center and an annual “week of wellness” with health exhibitors and educators.

“There is a very good work life balance that exists,” a former employee wrote in a review on the careers website Glassdoor. “Opportunity for promotion is always present. The benefits package is great.”

Despite the transformations Mesirow has undergone with time and its expanding geographical reach, the firm remains focused on its founding principle. “Through it all, we have remained one firm, with one focus,” Price said. “We are united by a single goal of doing what's right for our clients.”