Sanders Morris Harris Group Inc.

600 Travis, Suite 3100
Houston, Texas 77002
U.S.A.

Telephone: (713) 224-3100
Toll Free: (800) 900-4611
Fax: (713) 993-4677
Web site: http://www.smhg.com

Public Company
Incorporated: 1999 as Pinnacle Global Group Inc.
Employees: 317
Sales: $103.90 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: SMHG
NAIC: 523120 Securities Brokerage

Sanders Morris Harris Group Inc. is a financial services firm that ranks as the largest investment bank in the southwestern United States. Through its subsidiaries, the company offers a broad range of services, including investment banking, asset management, securities brokerage, investment advisory services, and fiduciary services. Sander Morris Harris manages more than $6 billion in client assets. The company maintains offices in Houston, Dallas, Denver, Fort Worth, Los Angeles, and New York.

Origins

The process by which Sanders Morris Harris Group arrived at its name involved numerous mergers and acquisitions. It also charted the evolution of a small, Texas-based, private equity placement firm into the largest investment bank in the Southwest. The series of mergers and acquisitions that led to the creation of Sanders Morris Harris Group at the turn of the 21st century brought together more than a half-dozen financial services executives, their surnames constituting the corporate titles of their businesses. For example, when Sanders Morris Mundy merged with Harris Webb & Garrison, the transaction joined together Don Sanders, Ben Morris, John Mundy, Robert Garrison, Titus Harris Jr., and Richard Webb. The one name missing from this group, however, was the most distinguished of the lot, Sanders Morris Harris Group's chairman, George L. Ball.

Ball was regarded as a wunderkind during the 1970s, earning a sterling reputation that had not faded by the turn of the 21st century. A New Jersey native, Ball earned an economics degree at prestigious Brown University in 1960 and then spent the next two years serving in the U.S. Navy. After leaving the military, Ball joined E.F. Hutton, one of the largest financial services companies in the country. Ball worked as stockbroker at E.F. Hutton, joining the retail side of the company's business. He quickly made a name for himself, besting his contemporaries by a wide margin, and quickly rose through the firm's executive ranks. Ball was 39 years old when he was named president of E.F. Hutton, gaining promotion to the number two position at the firm at a remarkably young age.

When Ball was promoted to president in 1977, he began working alongside E.F. Hutton's chairman, Robert Fomon. Fomon concentrated on corporate strategy and investment banking, while Ball took charge of the firm's retail brokerage business. Ball excelled in his responsibilities. "Ball was like a big brother to us," an E.F. Hutton broker said in a February 29, 1988 interview with Fortune magazine. He was "a leader, a Napoleon," the broker added. "He kept us together, created an esprit de corps." Ball assembled an exceptionally skillful team of salespeople, leading a brokerage force that generated more commission per account than any competing firm. By 1980, E.F. Hutton's brokerage business was generating $1.1 billion in revenues, more than any firm in the country save Merrill Lynch.

E.F. Hutton was immensely successful under Ball's leadership. The company's collapse after his departure only added to the luster of his reputation. In mid-1982, in what the June 6, 1983 issue of Forbes magazine termed a "celebrated defection," Ball left E.F. Hutton to serve as president and chief executive officer of Prudential-Bache Securities, Inc. Not long after Ball left, E.F. Hutton deteriorated, rocked by a scandal that led to the company's guilty plea in 1985 to 2,000 felony charges involving a massive check-overdraft scheme. The company collapsed, primarily because of its conviction for fraud, but many in Wall Street were quick to point out that E.F. Hutton was never the same after Ball left the firm.

Ball's career progressed at Prudential-Bache. In 1986, he was elected to the position of chairman, holding the three top posts (chairman, chief executive office, and president) until his resignation in 1991. Next, Ball spent a year working as a consultant before joining Smith Barney Shearson Inc. in 1992 as the firm's senior executive vice-president. Meanwhile, the company that would later count him as its chairman, Sanders Morris Harris Group, was beginning to take shape as the numerous corporate entities that constituted its operations began to join together.

The earliest predecessor Sanders Morris Harris Group was formed in 1987. That year, three financial services executives started their own firm, Sanders Morris Mundy Inc. The principal figures involved were Don Sanders, Ben Morris, and John Mundy, two of whom, Sanders and Morris, served in executive capacities at Sanders Morris Harris Group at the turn of the 21st century. Morris, a certified public accountant, started his career at what later became PricewaterhouseCoopers, LLP, and served in several executive capacities at Mid American Oil and Gas, Inc., eventually becoming the company's president. Sanders was a familiar face to George Ball, joining E.F. Hutton while Ball was enrolled at Brown University. Sanders spent 28 years at E.F. Hutton, where he ranked as one of the firm's leading brokers, resigning in 1987 to co-found Sanders Morris Mundy.

Sanders Morris Mundy represented of the principal firms that later formed Sanders Morris Harris Group. The firm provided corporate equity financing and money management services to a wealthy clientele. Sanders Morris Mundy participated as co-underwriter on numerous initial public offerings (IPOs), helping several Texas-based companies such as Houston's USA Waste Services Inc. and Leviathan Gas Partners convert to public ownership. In 1996, in a deal that played a significant part in the creation of Sanders Morris Harris Group, the firm acquired Williams MacKay Jordan & Co. A Houston-based firm, Williams MacKay specialized in providing institutional brokerage services and public company research, exhibiting a particular expertise with companies based in the Southwest and with companies involved in the energy sector. According to several analysts, it was Sanders Morris Mundy's acquisition of Williams MacKay, specifically its institutional business, that made the company an attractive candidate for inclusion within Sanders Morris Harris Group.

While Sander Morris Mundy broadened its business scope, another Houston-based firm was expanding as well. The firm of Harris Webb & Garrison represented another principal firm that eventually created Sanders Morris Harris Group. The retail brokerage and investment bank was started in 1994 by Titus Harris, Jr., Richard "Rit" Webb, and Robert Garrison II. Harris and Garrison played leading roles in the formation and management of Sanders Morris Harris Group. Harris, who worked at E.F. Hutton during Ball's tenure, served as senior vice-president of Lovett Underwood Neuhaus & Webb, a division of Kemper Securities Group, Inc., between 1983 and 1991. Garrison also worked for a division of Kemper Securities, serving as managing partner of Lovett Mitchell Webb & Garrison. The same year he co-founder Harris Webb & Garrison, he also helped start Pinnacle Management & Trust Co., the third principal company behind the formation of Sanders Morris Harris Group.

1999 Merger Creates Pinnacle Global Group

It was from Garrison's side of the corporate family that Sanders Morris Harris Group's formation began. In 1999, Garrison's firm and Pinnacle Management & Trust merged with three companies, PGG Capital, Spires Financial, and TEI Inc. TEI was a publicly held environmental services company that sold its assets before the merger. Pinnacle Global Group was formed as a holding company to house the merged entities, becoming a publicly held concern itself by virtue of absorbing TEI. Pinnacle Global Group represented the most direct descendant of Sanders Morris Harris Group. In October 1999, Pinnacle Global Group announced its agreement to acquire Sanders Morris Mundy, which by this point was led by George Ball. After a dozen years in business, Sanders Morris Mundy had developed an institutional sales and research team that covered more than 150 companies in the Southwest, for which Pinnacle Global Group was willing to pay $40 million to acquire. Pinnacle Global Group, reportedly, was particularly attracted to the assets Sanders Morris Mundy acquired in its 1996 purchase of Williams McKay Jordan & Co.

At the time the acquisition was announced, Pinnacle Global Group stood as a $136.4 million-in-assets financial services holding company. Garrison and his fellow senior executives decided to merge Sanders Morris Mundy into Harris Webb & Garrison. When the transaction was completed, the merger, which led to Ball's appointment as chairman of Pinnacle Global Group, created Sanders Morris Harris, a Pinnacle Global Group subsidiary and the largest Texas-owned and Texas-based investment bank. To this profile were added two more acquisitions completed before the end of 2000, the purchase by Sanders Morris Harris of Blackford Securities, a Garden City, New York-based prime brokerage company, and the joint Pinnacle Global Group and Sanders Morris Harris acquisition of Cummer/Moyers, a fixed income manager based in Fort Worth, Texas.

Company Perspectives:

Sanders Morris Harris Group's focused vision is to maintain a solid regional presence and offer an extensive menu of services to meet the diverse needs of high net worth individuals. The Company will continue to seek new ways to achieve even higher service levels, enhanced by our time-proven expertise, impressive performance, experienced team of professionals, an award-winning research team and respected corporate stability.

A new identity for Pinnacle Global Group became the notable event of 2001, an event that brought the company back to the roots of its earliest predecessor. Sanders Morris Harris, an investment bank with more than $2 billion in assets in its private client group, was the most well known of all the businesses operating under the Pinnacle Global Group umbrella. Ball hoped to end confusion by adopting Sanders Morris Harris as the new name for the entire organization, explaining his reasoning in a June 1, 2001 interview with the Houston Chronicle. "There are eight corporations that publicly trade as Pinnacle-something," he said. "Pinnacle Global got confused with a few troubled Pinnacles, one of which is in Chapter 11, and some others are dot-coms not doing so well right now." Accordingly, Pinnacle Global Group changed its name to Sanders Morris Harris Group Inc., changed its ticker symbol from PING to SMHG, and rebranded its subsidiaries. Blackford Asset Management became SMH Asset Management; PPG Capital became SMH Capital; and Cummer/Moyers became SMH Capital Advisors.

Sanders Morris Harris Expands in the Early 2000s

In the wake of Pinnacle Global Group recasting itself as Sanders Morris Harris Group, the company broadened the scope of its activities, expanding largely through acquisitions. In April 2001, Sanders Morris Harris announced its acquisition of Kissinger Financial Services Inc., a financial planning firm based in Maryland. Kissinger, with $300 million in assets under management and $2.4 million in annual revenues, retained its name after the acquisition, becoming a wholly owned subsidiary of Sanders Morris Harris Group. In 2002, the company waged a bidding war with five West Coast-based banks and one New York-based bank for the 23-person institutional equity group of Sutro & Co. Sanders Morris Harris Group emerged as the winner, gaining a Los Angeles-based sales team that expanded the company's research coverage, moving it into new sectors such as entertainment, media, satellites, and wireless.

As Sanders Morris Harris Group entered the mid-2000s, the company was cementing its reputation as an insightful research organization that adhered to a pragmatic, conservative investment strategy. "We have not been marching around with a high school band behind us," the company's research director remarked in a May 2002 interview with Buyside. Nevertheless, the company, albeit quietly, had grown into a formidable, respected force in the Southwest's financial community. With Ball serving as chairman, Sanders serving as vice-chairman, and Morris and Garrison holding the titles of chief executive officer and president, respectively, the company pressed ahead with its growth plans. The acquisitions completed as the company entered the mid-2000s suggested its senior executives had yet to satisfy their ambitions.

Sanders Morris Harris Group completed two important acquisitions in 2003 and 2004 that provided momentum for the company's future expansion. In 2003, the company merged its Pinnacle Management & Trust Co. subsidiary into Salient Partners LP, a manager of $670 million in assets held by high-net-worth investors. Sanders Morris Harris Group retained a 50 percent stake in the merged entity, bringing assets under its management to $5.2 billion. In 2004, the company acquired Crest Advisors, an investment advisory firm based in New York City. Founded in 1996, Crest Advisors focused on the telecommunications, media, and technology sectors. Its acquisition by Sanders Morris Harris Group represented an integral component of the company's strategy to sell financial services and products to middle-market companies, that is, those with annual revenues ranging between $25 million and $500 million, a section of the market that Ball and his team hoped to exploit as the decade progressed.

Principal Subsidiaries

SMH Private Equity Funds; Salient Partners & Pinnacle Trust Co.; SMH Captial Advisors, Inc.; SMH Asset Management.

Principal Competitors

Morgan Keegan & Co., Inc.; Stephens Inc.; SWS Group, Inc.

Key Dates:

1987:

Sanders Morris Mundy Inc. is formed.

1994:

Harris Webb & Garrison is established.

1996:

Sanders Morris Mundy acquires Williams MacKay Jordan & Co.

1999:

Pinnacle Global Group is formed.

2001:

Pinnacle Global Group changes its name to Sanders Morris Harris Group Inc.

2002:

Sanders Morris Harris Group acquires Sutro & Co.'s institutional sales team.

2003:

Sanders Morris Harris acquires a stake in Salient Partners LP.

2004:

Crest Advisors is acquired.

Further Reading

Apte, Angela, "Let's Make a Deal," Houston Business Journal, February 11, 2000, p. 2B.

Buggs, Shannon, "Houston Financial Services Holding Company Changes Name, Retires Ticker," Houston Chronicle, June 1, 2004, p. 7.

——, "Sanders Morris Harris Group Bolsters Investment Bank Arm," Houston Chronicle, April 23, 2004, p. 54.

Carlsen, Clifford, "A Small Texas Biotech Fund with Grand Designs," Daily Deal, October 1, 2001, p. 32.

Chensvold, Christian M., "Sense & Sensibility: Sanders Morris Harris Group Blends the Styles of Value and Pragmatism with Growth and Momentum," Buyside, May 2002, p. 69.

Fowler, Tom, "Venture Capital Fund Created to Help Smaller Biotech," Houston Chronicle, September 28, 2001, p. 4.

Gordon, Sarah, "Texas Boutique Acquires Sutro Equity Group," Wall Street Letter, January 7, 200, p. 1.

Greer, Jim, "Pinnacle Drops Name in Favor of Subsidiary's Recognized Moniker," Houston Business Journal, May 25, 2001, p. 8A.

"Investment Group Credits Management, Banking Arms," Houston Chronicle, November 5, 2004, p. 9.

Rulison, Larry, "Timonium Financial Firm Sells to Texas Gaint," Baltimore Business Journal, April 13, 2001, p. 17.

Serva, Sandy, "Rooted in Research," Buyside, May 2003, p. 57.

"Texas Investment Banks to Merge," American Banker, October 14, 1999, p. 7.

—Jeffrey L. Covell