Ex-Hilliard Lyons CEO Allen says merger was strategic move

By Mark Green

WEALTH MANAGEMENT

Jim Allen

Louisville-based Hilliard Lyons surprised many when the financial adviser and manager of some $50 billion in client wealth across 70 offices announced in November 2018 it would become part of Milwaukee-based Baird, which was managing around $200 billion for clients at its 90 offices.

Under the umbrella of employee-owned Houchens Industries headquartered in Bowling Green, Hilliard Lyons was running smoothly and was essentially independent. The 164-year-old firm was stable and profitable.

Now a year later, the conversion and assimilation into Baird is complete. The pride of Kentucky’s financial community has shed some 85 positions at the former Hilliard Lyons headquarters in Louisville and CEO/Chairman James Allen’s title is now vice chairman of Baird.

However, Allen is very pleased with the results and said the move ultimately saves jobs in Louisville. It is expected to produce long-term stability moving forward for the former Hilliard Lyons headquarters operations and its widespread offices.

Allen expects no further reductions in Louisville’s three Baird offices or the 67 other former Hilliard Lyons sites. To the contrary, he expects growth moving forward. The 70% of former headquarters staff retained through the transition “is at the top of the scale,” he said, and if the perspective is across all former Hilliard Lyons offices the retention level is 85-90%.

“The opportunity to merge with Baird was one we proactively sought out,” Allen said. “There was a longstanding and good relationship with Baird for two decades plus.” The pair “had become close peer firms in the industry.”

At an industry conference in Washington shortly before the interview for this story, Allen said he heard repeatedly that others consider the merger a natural combination.

Baird has $285 billion in assets as of mid-2019. It has roughly 4,500 employees in over 100 locations in the United States, Europe and Asia. More than two-thirds of employees own Baird stock. This year, managers for small-cap and mid-cap institutional funds ranked Baird No. 1 overall for combined quality in sales, corporate access and research.

Baird reported $1.8 billion in 2018 revenues, a firm record, and the Baird Foundation gave $4.1 million to nonprofits.

“We just see the world the same”

Hilliard Lyons and Baird shared an overall culture, operational best practices and approach to the business, Allen said, including a vision of involvement with the communities where they work. But probably more importantly, the wealth management industry is ever-consolidating and the Hilliard Lyons job cuts would have been much deeper had it been acquired by one of the large Wall Street firms that have automated more services to cut costs and make their fees more competitive.

“With any combination like this, you can have a compelling business model on paper,” Allen said, “but what brings it to life is when corporate cultures are aligned. We just see the world the same way as Baird.”

That includes a focus on clients first and high customer service.

Allen describes it as “a true caring for people, whether client or colleague. That’s what make the numbers work so well and brings them to life.”

The Louisville firm with offices across Kentucky and in several Midwest states began to outsource and upgrade some support operations for its platform two years ago, Allen said. Having accomplished what the firm wanted, in 2018 a larger and more strategic repositioning then became a goal.


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The original independent firm had sold to PNC Bank in 1998 during a wave of industry consolidation created by repeal of the federal Glass-Steagal Act that had separated traditional banking from investment banking since 1933. A decade later Hilliard Lyons management and employees essentially “bought it back in 2008 with the help of Houchens Industries,” Allen recounts.
Houchens is one of the largest 100% employee-owned companies in the world, according to Forbes, and Hilliard Lyons fully adopted the structure.

A decade after that deal, he said, Hilliard “looked to the future and decided it was time to part company with Houchens.” Hilliard was different from rest of the Houchens holdings, which mostly are business-t0-consumer retailers of food and related products.

“Charts a very long-term course”

According to Allen, the now completed alignment with Baird has resulted in an even stronger privately held, employee-owned company in which Hilliard’s culture and values will continue. Importantly, it avoided Hilliard being acquired by a larger, publicly traded Wall Street wirehouse firm – a situation in which its best practices and community involvement culture might have been expendable if board members for new owners deemed a change more profitable.

Becoming part of Baird “is a productive structure for the future,” according to Allen. It aligns the interests of the employees with the company. All Hilliard Lyons associates are now part of Baird. More than 500 former Hilliard Lyons employees have become shareholders in Baird, an indication that they see no space between their individual personal interests and those of the rest of Baird’s ownership.

“It’s a strong message that we are aligned with where they are,” he said. “We think it charts a very long-term course.”

Allen said there was an overlap of about 10 communities between Hilliard Lyons’ 70 locations and Baird’s 90 offices. However, in all of the 10 instances the offices were in different areas of the city from one another and did not present a redundancy in coverage.

“The office network fit together remarkably well,” he said.

Baird’s foreign offices include “a large presence” in financial centers such as London, Shanghai and Frankfurt, Germany.
As a consultant to many local government entities in Kentucky, Hilliard Lyons brought a significant public finance niche operation to the deal as well as a strong trust expertise; the Hilliard Lyons Trust Co. managed more than 20% of the firm’s assets and retains its name as a Baird subsidiary.

Trust capabilities are more valuable than ever as an ongoing demographic shift continues to produce a transfer of wealth that requires thoughtful planning and execution.

Allen strongly believes the merger-acquisition has produced “a right-sizing” for the Baird of today that prepares it for growth.

Ownership is broad based, and decision making is by a “thoughtful and diverse” executive committee of about 20, including Allen.

“Baird is a very strong community-oriented, give-back-to-the-community organization,” Allen said. “We are going to continue to be the strong community partner that we have been historically” in Louisville and Kentucky.


Mark Green is executive editor of The Lane Report

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