needed capital. Generally, an investment bank must have between 5% and 10% of the size of the transaction in capital to do underwriting.†If it doesn’t have the capital, it can’t do the deal.
Atlanta Life had capital. “The insurance side actually throws off significant amounts of cash,” Brown explains. “And it’s a cash business because what happens is there’s a settlement that’s done at the end of every quarter, at the end of every six months, or the end of the year, where you and whoever the major insurance carrier is that you’re in business with settle up.” While 2007 was a banner year, the insurance business has its ups and downs contingent on the mortality rates of the policyholders. If more policyholders die, the insurer has to pay out more. If fewer die, then the company keeps more of its money. It’s potentially lucrative but also frustratingly unpredictable.
Atlanta Life had capital and needed another business leg. Jackson had the business leg but needed the capital. The relationship was almost serendipitous. “We felt that [Jackson’s capital issues] were something we could fix by pumping net capital for doing transactions into Jackson Securities,” Brown says. “So now they can be looked at as a co-senior or senior manager because they had enough net capital to be involved in deals at those levels.”
Ironically, Maynard Jackson himself had opened talks to combine with Atlanta Life in 2000 but little progress was made. “The board considered it but we didn’t get far with it and it kind of died,” recalls William A. Clement, chairman of Atlanta Life. “When Maynard passed in 2003, Reuben was the hand-picked CEO and successor to Maynard, and he and I worked on a plan to make sure that Jackson [Securities] was stable. And it was his idea to contact Ron Brown to pick up the discussions.” The agreement was hammered out and the transaction closed in early 2007. In one year, Jackson Securities’ total senior- and co-managed issues increased by a whopping 171% to $61.9 billion.
Atlanta Life is realizing the synergies of a successful merger that’s all too rare in the black business community. “I’m very happy with the way things are going. We’re doing well in spite of the bad economy,” says Valerie Jackson, the founder’s widow. “I was very enthusiastic about the partnership and that’s because several years before Maynard passed, he had talked about a partnership with Atlanta Life because we felt that the two companies could really complement each other. So when Reuben and I did talk about seriously pursuing it, I knew we would have Maynard’s blessings.”
One year later and business is looking good, despite the weakness in the U.S. economy and financial markets. Jackson Securites is on solid ground. The asset management firm is on target despite the volatility of the stock market, while its insurance business hit its 2008 goal in the first quarter.
In addition to extolling the virtues of creative thinking, solid communication skills, and clarity of vision, CEO Brown