Stonecap Securities Inc. was formed in 2010 when the sale of former Blackmont Capital’s retail brokerage division created an unexpected opportunity for the employees to acquire the remaining institutional capital markets business from then owner CI Financial Inc. Two years later, the firm’s senior partners have narrowed its focus, aligned its resources, and strengthened the firm’s client relationships, creating a solid foundation for future growth.
“This is effectively the restart of an existing business, and any time you can capitalize on the advantages of having a pre-existing business, that is a big leg-up,” said Jeff White, President and CEO of Stonecap Securities. “Starting a securities firm from scratch, given the current regulatory environment, the competitive landscape, and the technological requirements of business today, is a much more difficult task.
“It is a very advantageous starting point in the sense that, although Stonecap is a relatively new firm, we were able to take advantage of an eight-year history with clients and some longstanding professional services relationships.”
Stonecap employees are dedicated to the firm, as demonstrated by their decision to acquire the capital markets division—a fact that White is very proud of.
“For many of our people, this was one of the most significant transactions of their lives. Anytime you go from a division of a $6 billion entity, it is a much different risk-reward model for employees than an employee-owned firm. The fact that we have been able to retain talented individuals, and attract new ones to the firm, speaks to their recognition of the magnitude of the opportunity ahead of us,” White said.
Employee-owned investment dealer
Despite its long history, the acquisition enabled management to restructure the company to optimize it for future success. The executive committee began by analyzing the performance of other firms in its industry, and adopting the elements that were shared by the most successful firms.
“We recognized a few factors that we thought were common to those firms that had achieved the most in the shortest amount of time,” White explained. “One was employee ownership and a flat ownership structure. It is critical to have employees with a meaningful stake in the company’s success as you move forward. Employee ownership promotes cohesiveness and ensures that the interests of the firm and employees are aligned which ultimately translates into a better client experience.”
In addition to the employees, a minority ownership in the firm is held by Urbana Corp., a public company run by Tom Caldwell. “Urbana has been a great partner and enables us to enjoy the benefits of employee ownership yet ensures that the firm is adequately capitalized, which is essential,” White said.
Right size focus
Since its inception, Stonecap Securities has continued to lay the groundwork to boost its success going forward. One of the first tasks that White and his team set about doing was to strategically narrow the firm’s focus in order to form a more solid foundation for growth.
Stonecap has eliminated its coverage of certain sectors, which were better suited to a retail brokerage division—Stonecap is strictly an institutional dealer today.
Stonecap Securities believes it has achieved the right size in order to best move forward and meet its aggressive objectives.
“Today, we are very well positioned in the sense that, at approximately 40 people, we are at the size that will enable us to grow our revenues significantly without adding additional costs. This gives Stonecap significant operating leverage and enables us be successful through virtually all market conditions,” White summarized.
The people business
Stonecap Securities’ goal is to be a Top 5 independent investment dealer within the next five years, a goal management is confident of achieving having now created a platform to attract top performers to the firm, a key success factor in the highly competitive investment dealer sector.
“In order to attract talent, you have to create an atmosphere that fosters teamwork and an open environment where employees can challenge themselves and each other with positive consequences,” White said. “Our focus is on developing our reputation and building our brand as a firm that adds value for clients.
“This is a people business, a client-driven business, and we’re focused on building long-term relationships and growing with our clients. That starts by identifying high quality companies and management teams and then exceeding their expectations from a service perspective. That is a core foundation of the firm and you need to have the right people in place to consistently deliver superior service to clients.”
In separating itself from the competition, Stonecap Securities is an “idea focused” company that works to provide the most insightful and profitable ideas to its clients. As a smaller firm, Stonecap has the advantage of being able to rally all of the resources of the firm to ensure the best possible execution and results for its clients, including investment banking transactions and trade execution.
“We are able to align ourselves very well across all departments—investment banking, research, sales, and trading,” White said. “When you’re able to align those departments, you get good market intelligence, which drives research ideas and enhances our investment banking effectiveness, often leading to transactions, which feed right back into good market intelligence for the benefit of our clients.”
Idea-focused, ability to execute, and clients first—those are the Stonecap differentiators according to White.
Weathering the economic storms
The success of Stonecap Securities stems from its business focus, of which about three-quarters is resource-focused (mining and energy), with the balance coming from diversified industries. With this strategy, Stonecap is able to maintain contact and relevancy with its clients in virtually all market conditions.
“As an independent investment dealer, we are not trying to be all things to all people. But at the same time, you can’t be so niche-focused that you’re vulnerable in the event of an economic downturn,” White explained. “Economic downturns affect everyone in our business. The key to weathering market volatility is remaining lean, not growing too quickly…it is better to stretch the resources you have then to bulk up too aggressively and sacrifice flexibility.”