Type: Public Company
Address: 1221 Avenue of the Americas, New York, New York, 10020, U.S.A.
Telephone: (646) 562-1000
Toll Free: (800) 221-5616
Fax: (646) 562-1861
Web: http://www.cowen.com
Employees: 537
Sales: $345 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: COWN
Incorporated: 2006
NAIC: 523110 Investment Banking and Securities Dealing
Cowen Group, Inc., is a NASDAQ-listed financial services company in New York City. The boutique's investment banking units are involved in mergers and acquisitions, securities underwriting, private equity placements, and leveraged buyouts. Cowen focuses on small to midsized companies in several industries: aerospace and defense, alternative energy, consumer, healthcare, technology, and telecommunications. In addition, the firm offers research services in these fields, and serves institutional customers by acting as a market maker for NASDAQ stocks within its range of expertise, about 850 securities in all, and by providing list block trading services that cover all sectors of the S&P 500. Cowen also acts as a market maker for more than 200 convertible and preferred securities for institutional customers. The firm maintains offices in Boston, Chicago, Cleveland, Denver, and San Francisco, as well as London and Geneva.
World War I-Era Origins
Cowen Group was founded in 1918 as Cowen & Co. by brothers Harry G. Cowen and Arthur Cowen, Sr., who set up shop as a bond brokerage at 120 Broadway in the Wall Street district of New York City. Harry, the older of the two, graduated from Columbia University in 1902 and three years later received a law degree from the school. Arthur also earned a degree from Columbia, graduating in 1909. Four years after the establishment of Cowen & Co., their younger brother, Edwin A. Cowen, was brought into the fold through a merger with the firm Adler, Cowen Company. During the 1920s the firm gained a seat on the New York Stock Exchange and began providing clearing and execution services, specializing in industry stocks, such as Armco Steel Corporation, for which Arthur Cowen was the point person.
Cowen & Co. moved to 54 Pine Street in 1933. Despite the Great Depression, the firm never lost money during these years. In the 1940s it did a good deal of business acting as a specialist in railroad bonds. In February 1945 Edwin Cowen was injured when his chauffeur ignored a Long Branch, New Jersey, grade crossing guard waving a pair of red lanterns, and his automobile was struck by a Pennsylvania Railroad express train. Suffering from severe shock, Cowen was taken to an area hospital but his injuries were not life threatening. He would actually outlive both of his brothers. Harry died of a heart attack in 1957 at the age of 74, while Arthur died in New York Hospital in 1963, reaching the age of 76.
By the time the first generation passed away, Arthur Cowen, Jr., had taken charge of the firm. He joined the firm in 1933 after graduating from Wesleyan University, and saw Cowen & Co. prosper during the post-World War II economic boom. Its headquarters were moved to 45 Wall Street during the 1960s, when the firm established a research and institutional sales unit. By the 1970s, however, the tide was turning. According to a 1986 Forbes profile, "Cowen & Co.'s capital was a minuscule $5.7 million, and a good part of it was borrowed. 'In the first half of 1974 business was so slow we lost money for the first time, including the Depression years,' recalls Cowen. ... Adds comanaging partner Joseph Cohen: 'We were headed for trouble.'" Although well into his 60s Cowen decided the time had come for drastic changes at Cowen & Co.
First, Cowen ended the tradition of bringing in family members of the partners, including his own. "Having family continue to run brokerage firms has been the downfall of more brokerage firms than you can imagine," he told Forbes. It was at this time that he promoted Cohen, now in his mid-30s, who had joined the firm in the late 1960s as his research assistant. According to Forbes, Cohen was "an analyst with an intellectual bent (his graduate thesis at Columbia University analyzed the impact of taxation on England during the Industrial Revolution)." In addition, Cowen hired an engineer and operations specialist to modernize the back office operations while he and Cohen mapped out a strategy to expand and diversify the firm. To improve margins costs were also trimmed, the partners' dining room among the first casualties.
G.S. Grumman Associates Acquired: 1976
Cowen & Co. abandoned the industry stocks that had so long been its focus, eliminating the specialist trading business that Cowen himself had headed for more than 25 years, and pursued more profitable investments, primarily through the acquisition of other brokerages that brought with them additional branch offices. A step in this direction had been taken in 1970 when Cowen acquired the firm of Greene & Ladd, a move that brought the firm into the retail securities business. In 1976 Cohen learned that Boston-based G.S. Grumman Associates, a research-oriented stock brokerage, was on the block. Founded in 1964, Grumman was small but well respected for its coverage of the computer, pharmaceutical, and aerospace industries. Grumman decided to join forces with Cowen in part because of its desire to become part of a full-service firm and, as Arthur Cowen told Forbes, "We told them we want to make money together and we want to have fun." Cowen then added to its retail business through the 1977 acquisition of Hardy & Company. All told, during the 1970s Cowen added six offices across the United States and relocated its headquarters to One Battery Park Plaza in Lower Manhattan.
Cowen expanded internationally in the 1980s, adding offices in London, Paris, Geneva, and Tokyo. In addition, another domestic office was opened in San Francisco. By 1986 the changes made a decade earlier were bearing considerable fruit. With 150,000 clients, the firm's capital approached $100 million, the bulk of which belonged to the firm's 26 partners instead of to lenders, as had been the case in 1974. Moreover, with pretax returns on capital averaging 50 percent to 60 percent since the late 1970s, the partners were clearly prospering. In the past ten years Cowen's institutional brokerage business had grown from a mere $1.5 million to the neighborhood of $24 million. The firm looked to expand its retail business further in 1986 by acquiring Chicago-based Freehling & Company, while at the same time launching an investment-banking unit. It was also in 1986 that its ties to the Cowen family were severed when in April of that year Arthur Cowen died of a heart attack at the age of 75, literally working at the firm until the day that he died. Cohen succeeded him as chairman and chief executive.
Cowen expanded its investment banking business at the start of the 1990s. In 1990 Cowen helped companies raise $200 million through five initial public offerings (IPOs) of stock plus secondary offerings. This amount would pale in comparison to the unit's business just five years later, when in 1995 it would be involved in more than 75 transactions worth $5 billion. In a third of these deals, Cowen was the lead manager. A major reason for this success was that an area of the firm's expertise, technology, had become extremely popular with Wall Street. At the start of the 1990s Cowen had bolstered it abilities in this area by adding telecommunications coverage. It was also during this period that Cowen launched its convertible sales and trading unit to provide an even greater level of service to its clients. In 1995 the firm added a fourth group to its research unit by then covering media and entertainment stocks. To head this unit the firm lured away a top executive from Merrill Lynch, Harold Vogel. In addition to growing its investment-banking unit, which between 1994 and 1995 almost doubled its number of bankers to 42, Cowen emphasized its asset management business. In less than three years the amount of assets under management had increased from $1.65 billion to $4.1 billion by the spring of 1995. Cowen's geographic footprint also grew through the opening of a Toronto office.
Firm Sold: 1998
In the late 1990s firms like Cowen became hot commodities for commercial banks and others looking to increase their investment banking capabilities. Some of Cowen's chief competitors specializing in technology and healthcare investment banking were snapped up by major banks in 1996 and 1997, including Alex Brown; Robertson, Stephens, Inc.; and Montgomery Securities. Putting itself up for sale became a highly attractive option for several reasons. First, the prices being paid for such firms were extremely high, about four times book value. With an estimated book value of its assets at $150 million, Cowen was looking to command a sales price between $500 million and $600 million. Moreover, a combination with a large bank provided access to more capital to help grow the firm, and the parent firm's range of services could help in the recruitment of new clients. Cowen hired an investment bank, Lazard Freres & Company, to review its options, which in addition to a sale included an IPO of stock or an infusion of outside capital. The high sale prices were too tempting, however, and in February 1998 Cowen agreed to be sold for $540 million to the U.S. investment bank set up by one of France's largest banks, Société Générale.
Once government owned, the Paris-based Société Générale was privatized in 1987. To avoid becoming pigeonholed as a large regional European bank, it looked to establish operations in the world's major financial centers, a decision that naturally brought it to New York. To head this effort, Société Générale in 1996 hired an American investment banker, Curtis R. Welling, who had 20 years of experience working on Wall Street. Unlike the approach of other foreign banks becoming involved in the U.S. securities business, Société Générale elected to focus on smaller companies involved in select industries. This niche strategy won over Welling when he was recruited for the post and it made Cowen a highly desirable acquisition target. With its addition, Société Générale was able to underwrite U.S. securities for the first time.
After the sale, Cowen was renamed SG Cowen Securities Corporation, and Cohen became the firm's chairman while Welling took over as president and CEO. The integration of the acquisition did not go smoothly, however. American Banker reported in December 1999, "Some executives say the commercial bank's strategy in dealing with Cowen's general partners alienated some of the original staff members after the deal was completed. Early on, the banking company suffered departures of senior executives, and some say it was slow to attract top-tier talent." Both Cohen and Welling would leave the firm, with the reins turned over to Kim S. Fennebresque, who came to the firm from USB shortly after the merger to head the mergers and acquisitions unit. In November 1999 Fennebresque succeeded Welling and was eventually named chairman as well. To complicate matters, just as the acquisition was being completed Société Générale shied away from its strategy of building a global investment banking franchise. According to a 1999 American Banker article, "The company altered that plan, analysts say, because of losses in fixed-income resulting from the 1998 emerging-market crisis and a lengthy but unsuccessful bid this summer to merge with the French investment bank Paribas." All of this uncertainty combined to hurt SW Cowen's performance. In particular, the firm experienced significant erosion in its technology and healthcare investment banking activities.
In 2000 SG Cowen elected to focus on its core businesses of investment banking and research. As a result the firm's retail business was sold to Lehman Brothers. SG Cowen was not completely opposed to expansion, however. It soon added a new sector to cover the consumer industry, creating a complete team of analysts, traders, and bankers to be involved in this growth area. The firm enjoyed some good success in its sectors in the early years of the decade, but when in mid-decade investment bank IPOs began to do well, Société Générale took the opportunity to sell off SG Cowen in a public stock offering.
In July 2006 the stock offering was completed, all of the proceeds going to Société Générale. Subsequently the underwriters partially exercised an option to purchase more shares, so that the amount of money Société Générale received from the sale of stock was about $175 million. The bank also received a cash distribution from Cowen of approximately $180 million. Nevertheless, Cowen, which had been incorporated in Delaware as Cowen Group, Inc., possessed more than $200 million in capital and was well positioned to grow its business as its management saw fit, to add new sectors to cover, new products to offer, and new clients to serve. Later in 2006 Cowen formed a leveraged finance group to become active in the leveraged and structured finance areas. Then, early in 2007, the firm formed a new Alternative Energy Group.
Principal Subsidiaries
Cowen and Company, LLC; Cowen International Limited.
Principal Competitors
Greenhill & Co. Inc.; KBW, Inc.; Stifel Financial Corp.
Further Reading
"Arthur Cowen Sr., Broker, Founded Company in '18," New York Times, August 27, 1963.
"Broker Hurt by Train," New York Times, February 14, 1945.
"Cowen & Company in Deal to Acquire G.S. Grumman," New York Times, February 24, 1976.
"Cowen Is Latest I-Bank to Test IPO Water," Investment Dealers' Digest, April 3, 2006.
"Harry G. Cowen," New York Times, February 22, 1957.
Mandaro, Laura, "Cowen Merger, Two Years Later, Still a Struggle," American Banker, December 7, 1999, p. 1.
Pratt, Tom, "Cowen Beefs Up in Banking but Pace Remained Measured," Investment Dealers' Digest, May 15, 1995, p. 9.
Rudnitsky, Howard, "'I Like to Sleep at Night.' (Cowen and Cos. Has Nearly $100 Million in Capital and Has No Plans to Go Public or Merge)," Forbes, March 24, 1986, p. 50.
Tarquinio, J. Alex, "For Société Générale, 'Niche' Needn't Mean Small," American Banker, June 9, 1998, p. 9.
Truell, Peter, "French Bank to Buy Cowen for $540 Million," New York Times, February 23, 1998.
— Ed Dinger
