Erskine’s web

 In 2015-08

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By Lee Pace
Before there was autocorrect on word-processing software, before documents were spun around cyberspace at kinetic speeds, there was the red Sharpie pen. Erskine Bowles wielded them with authority and precision over documents his partners and associates produced at Bowles Hollowell Conner & Co., the Charlotte-based investment-banking firm launched in 1975.
A comma out of place? A scarlet F from Bowles’ pen.
A mushy fact? Another F.
A name misspelled? For sure, an F.
“I can still feel that pit in my stomach my first year when I’d submitted a draft of some materials to the client, then went back at 3 a.m. and found a typo,” says Ned Valentine, an associate at the firm from 1993-96. “You never forget that feeling. It sticks with you.”
“Erskine would say, ‘A-minus was a good grade in college. It’s a failing grade here,’” adds Hiter Harris, who worked there from 1987-91. “I just about bit my tongue when I first heard that. That was the tone he set from the beginning.”
Today, Harris runs Richmond, Va.-based Harris Williams & Co., an investment-banking firm he founded in 1991 with Chris Williams, another Bowles Hollowell employee. Valentine is managing director there. They are part of an extensive alumni network that retains a significant influence in the finance industry, specializing in mergers and acquisitions and private equity. Though Bowles left the firm in 1993 to tackle high-profile political and education positions, his influence remains critical to their success, according to interviews with a dozen former colleagues.
Five years after Bowles left the company, it was sold for $140 million to First Union Corp., which wanted to add merger and acquisition expertise to its corporate finance offerings. Twenty-eight stockholders — Bowles wasn’t among them — shared the proceeds, including 25 who signed four-year employment agreements, according to a Securities and Exchange Commission filing. Over time, most left for other companies or to start their own ventures (page 64).  First Union and Winston-Salem-based Wachovia Corp. merged in 2001, and by 2008, when San Francisco-based Wells Fargo & Co. bought Wachovia in a government-approved fire sale, most of the 125 investment bankers who comprised Bowles Hollowell a decade earlier were gone. At their new firms, they have sought to replicate the collegiality and attention to detail that marked Bowles Hollowell.
“We were the dominant player in the middle market,” says Don Millen, who worked at the firm in 1998-2000, then founded Dragonfly Capital Partners LLC, a Charlotte-based investment-banking firm. “People loved our deals. There was no b.s. or spin, just the facts, well-presented and well-organized. When the firm was sold, it was a crushing decision to anyone below the top level. First Union left us alone for a while, but soon you could feel the tentacles. It was never the same. Soon, guys started breaking off and scattering all over.”
The adage that in corporate finance, the most important assets walk out the door every night proved true for Bowles Hollowell. “We were never poached by any of the local investment banks,” says Mark Mealy, who left New York-based investment bank Morgan Stanley & Co. in 1989 to join the Charlotte firm. “When the company was sold, obviously, everything changed.”

Erskine Bowles’ world: A timeline (click on the image to view larger)
A Greensboro native and 1967 UNC Chapel Hill graduate, Bowles earned an MBA from Columbia University in the same 1969 class that included leveraged-buyout titan Henry Kravis; Lewis Frankfort, former CEO of accessories retailer Coach; and Max Chapman, another UNC graduate who was president of Kidder, Peabody & Co., a now-defunct Wall Street investment bank. Bowles joined Morgan Stanley and, in the early 1970s, frequently saw middle-market companies — loosely defined as companies valued at $10 million to $200 million — approach Goldman Sachs Group Inc. and other large Wall Street firms for advice. They wanted to sell but had little idea on how to find a buyer willing to pay top dollar. They needed an infusion of cash. They were considering merging with a peer but were unsure how to execute a transaction.
The deals were always sloughed off to “a junior-level, inexperienced person,” Bowles says. “Generally those middle-market deals were not structured as well, marketed as well, financed as well.” There was a market, he concluded, rather than chasing the largest companies that relied on the New York firms. The concept marinated for a few years as he moved back to North Carolina in 1972 to manage the gubernatorial campaign for his father, Hargrove “Skipper” Bowles Jr. A native of Monroe, the elder Bowles spent several years running his father-in-law’s food wholesale company and later started a realty and insurance business in Greensboro. He used a model that Erskine emulated, researching businesses across North Carolina, spotting troubled ones and then devising ways to help them rebound or sell to a stronger company. “It was a major impetus in my pursuing a career in investment banking,” Erskine Bowles says.
In an upset, Republican Jim Holshouser defeated Skipper Bowles during the election in which President Richard Nixon won a 49-state landslide over George McGovern. The loss came a year after Bowles had married Crandall Close, whose family owned Fort Mill, S.C.-based Springs Industries Inc., once among the world’s largest textile companies. Rather than return to New York, he joined Charlotte-based Interstate Securities Corp. as an investment banker. In 1975, he started Bowles Financial Services Inc., advising companies on merger and acquisition strategies, fundraising and business valuations. Later that year, Bowles added Thomas Hollowell, a tax accountant who had worked with Bowles at Interstate. In early 1976, Wachovia corporate banker Charles Conner joined, bringing an expansive knowledge of the state’s business community. The firm changed its name in 1977.
There was no instant success: Bowles says he didn’t take any compensation during the firm’s first four years. But Bowles Hollowell benefited as the Southeast economy revved in the early 1980s, prompting the 1984 addition of a fourth partner, Steve Cummings, who had worked in corporate finance at Kidder Peabody since 1979.
“My hope was to assemble a great team and do the same kind of work the larger firms were doing,” Bowles says. ”We could assemble a team of experts in law, accounting, taxation  and corporate finance and we could own the middle market. And we did. But it was hard work. I thought the first deal would be very hard, but the second wouldn’t be as hard. Not only would we have the client saying, ‘These guys are great,’ we’d have their accountants and lawyers and compliance people taking notice as well.”
Focusing exclusively on middle-market companies was brilliant because the concept was little understood until years after Bowles Hollowell started, says Eric Andreozzi, who worked at the firm from 1998 to 2001 before helping Hugh McColl Jr. start McColl Partners LLC, an investment bank acquired by Deloitte LLP’s Corporate Finance Unit in 2013. “No one was focusing on the middle market. In fact, no one really used the term ‘middle market’ back then,” says Andreozzi, a Deloitte managing director based in Charlotte.
“Erskine used to say we’d get the crumbs off Goldman’s table,” Mealy says. “They would refer jobs to us because they were too small. We took them very seriously and brought professionalism to a market that wasn’t very professional.” They were tasty crumbs because M&A advisory is among banking’s most lucrative niches: Investment bankers typically receive a commission of 1% to 3% of total transaction value, depending on the deal’s size and complexity.
Bowles and his early colleagues faced skeptics, who questioned if a Charlotte-based firm could develop a national clientele. In the mid-1970s, the Queen City was a decade away from establishing itself as a banking-industry hub, spurred by the growth of First Union and NCNB Corp. “I told the people at Morgan Stanley what I was doing, and they thought I was crazy,” Bowles says. “They told me they’d have me back if I wanted to come back. It took a little pressure off, knowing I had a backup if the idea failed.”
When Harris and Williams chose to work for Bowles Hollowell in 1987 after earning MBAs at Harvard Business School, “people looked at us like we had two heads,” Harris says. “Everybody coming out of business school in those days had choices. We had classmates going to Goldman Sachs or J.P. Morgan or Morgan Stanley or Chase or Chemical. We told them we were going to this little firm in Charlotte, North Carolina, with eight professionals, and they thought we were absolutely crazy.”
Size was part of the appeal. Staff could live in leafy, affluent Charlotte neighborhoods as close as 10 minutes from the office. “I went with Bowles Hollowell because I sensed it could be an awesome place to learn the business,” says Williams. “It was the one place I could go have a Wall Street-type experience, maybe even better, and do it in a place where balance of life was important.” Bowles and his partners made a concerted effort to find talented bankers who didn’t prefer the New York lifestyle, Millen says. “They wanted more of a family life, a nicer place to live.”
A 1993 case study by Harvard Business School cited the company’s collegial culture. “You don’t get ahead here by climbing over people’s backs,” a director told researchers. Business cards of the company’s top executives didn’t include titles, which “doesn’t sound like much, but it’s really a cool thing,” says Mealy, who started Colville Capital LLC in Charlotte in 2006. “It creates ownership at every level in the organization. There were no layers. Everyone was expected to pull their load and present themselves very well.”
Bowles Hollowell attracted graduates of top business schools, including some with unconventional backgrounds. John Ross was a top 100 professional tennis player and a runner-up in boys doubles at Wimbledon in 1982, and Bud Watts was a Citadel graduate who had been a fighter pilot in the U.S. Air Force. By 1998, Bowles Hollowell was a powerhouse in a market scoffed at by Wall Street, prompting First Union CEO Ed Crutchfield Jr. to buy the business. “No one else was servicing that middle band of companies,” Millen says. “There were a lot of family-owned businesses, a lot of businesses that needed financing or wanted to find a buyer but didn’t know how to do that.”
When Bowles departed to lead the U.S. Small Business Administration and, later, serve as Clinton’s chief of staff, his company had developed a well-regarded team. Nine employees were featured in a cover photo of Investment Dealers’ Digest magazine in 1995. Twenty years later, Bowles studies the picture. “I thought when I left, that team was really strong,” he says. “Looking back, it was incredible. I have an immense sense of pride looking at that group.”
Hollowell and Conner are retired, but the next generation remains active in many facets of finance. John Grigg, Ed Imbrogno, Stephen Dockery and Ross are partners at Fidus Partners LLC, an M&A advisory firm with offices in Charlotte and New York. Robert Calton is a founding partner of Summit Park LLC, a Charlotte-based private-equity firm. Matt Salisbury and Drew Quartapella, who had worked at Bowles Hollowell since the mid-90s, started Edgeview Partners in 2001. They sold the M&A adviser to CIT Group Inc. in 2007 and are founding partners at Charlotte-based BlackArch Partners LP, working alongside Kelly Katterhagen, the first female MBA graduate hired by Bowles Hollowell in 1990.
Cummings rose higher in the finance industry than any Bowles Hollowell alum, becoming Wachovia’s global head of corporate and investment banking in 2004, overseeing 7,000 employees. He departed in 2009 after Wells Fargo’s purchase and joined Switzerland-based UBS AG, becoming chairman of U.S. investment banking. In April, he was named CEO of MUFG Union Bank N.A., the New York-based unit of Tokyo-based Mitsubishi UFJ Financial Group.
Not everyone stayed in banking. In 2002, Tripp Johnston co-founded Fort Mill, S.C.-based Sports Friends, which provides equipment and personnel to establish ministries at churches in Africa, Asia and South America.
Bowles went on to start the Carousel Capital Co. LLC private-equity firm in Charlotte, complete two unsuccessful runs for U.S. Senate and lead the UNC System from 2006-10. As president, he routinely worked 12-hour days, focused on improving efficiency. Turning 70 this month, he is a board member at Morgan Stanley, Facebook Inc., Belk Inc. and Norfolk Southern Corp. and vice chairman and senior adviser of BDT Capital Partners LLC, a private-equity group in Chicago founded by Byron Trott, a former Goldman Sachs executive known for his close ties to Warren Buffett.

Nine senior executives of Bowles Hollowell Conner & Co. were photographed in The Charlotte Observer in 1995. Front row (seated): John H. Grigg, Stephen E. Cummings, John “Tripp” Johnston III and Robert G. Calton III. Back row (standing): Charles H. Conner Jr., Mark W. Mealy, Reid G. Leggett, Edward P. Imbrogno and Thomas P. Hollowell.
At Bowles Hollowell, sophomoric pranks complemented the hard work. A colleague traveling with Reid Leggett would change the breakfast card hung from his hotel room doorknob from healthy selections to a spread of sausage and waffles. Once, Cummings opened a package containing a new suit Hollowell had ordered and proceeded to sew the pant legs shut. “It was a hard-edged, athletic meritocracy that was a great place to work,” Mealy says. “If you asked Erskine, he would say I was his partner. If you asked me, I would say we all worked for Erskine. There was a level of trust and mutual respect in the company, it was remarkable. There was a zeal about working there.”
Bowles insisted that so-called “pitch books” filled with detailed narratives and financial data  had to be perfect before going to prospective buyers, banks or other capital providers. “If you put a book together and a comma was out of place, then the book was crap,” Andreozzi says. “Erskine would say the message you’re giving the client is we don’t care enough to make it perfect.” Work was graded “A” or “F” — no middle ground.
A poster in Bowles’ office read, “If you make a bad movie, people will not come and you can’t make them,” Mealy says. “The idea was that people have choices. When we did our books, they were the gold standard.”
Williams recalls many nights on the road in which Bowles would step out of dinners and bull sessions and return to his room to proof his colleagues’ work. Bowles previewed every document. “It didn’t matter what it was — even the smallest letter had to be exactly right and very thoughtful. I really think that is why so many of these firms that have come out of the Bowles Hollowell culture have done so well. We learned the business the right way.”
His obsessive nature reflects several influences, Bowles says. His father often said, “Take care of the little things, and the big ones will take care of themselves.” Former UNC basketball coach Dean Smith also took an interest, once querying Bowles in 1969 about his studies at Columbia. “He said, ‘Erskine, you have a pretty good chance to succeed if you’re prepared,’” Bowles recalls. “ ‘Do your homework and study hard. Chance favors the prepared mind.’”
Bowles Hollowell alumni still cross paths, so it was inevitable that mentor and mentee would take opposite sides in a transaction. BDT in March acquired a controlling interest of Paducah, Ky.-based Marquette Transportation Co., a towing company that owns more than 900 barges and other vessels. At a Chicago negotiating session, Bowles met with a former colleague representing the barge operator. “Small world — across the table was Chris Williams, adroitly representing the sellers and leaving nothing on the table,” Bowles says. Adds Williams: “It was one of those ‘life comes full circle’ moments. It was a little surreal.”
Harris Williams has expanded to London and Frankfurt since 2009 and last year advised clients or brokered deals in 11 countries. It now has 235 employees with expertise in 10 industries. “The power of what we learned early on at Bowles Hollowell was in its simplicity. You focus on the product, the market and the client,” Harris says. “Forty years after the fact, it’s still a beautiful thing.”
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