Mike Hankin is President and CEO of Brown Advisory, a position he has held since the firm became independent of Banker’s Trust/Alex Brown & Sons on June 30^th, 1998. Mike was employee number two.

In the last decade, Brown Advisory’s client assets have grown from $4 billion to almost $30 billion while increasing institutional focus, expanding internationally, and executing a number of strategic acquisitions.

Mike Gill, Chairman of Evergreen Advisors, LLC,  sat down with Mike recently and discussed a wide range of topics including: the dot-com and sub-prime meltdown, Brown Advisory’s special sauce, leadership and people, mentors, mulligans and family.

MG: How’s the economy?

MH: The economy is doing pretty well, given all of the challenges that are well known. Most people that we talk to want to know if it’s worth being in the equity market. The fact is that in this economy, with growth between 2% and 3%, there are a lot of companies doing really well. In 2010, at our client conference, called Navigating Our World, I got up and gave introductory remarks and my message was that even in very tough times, (2010 was a lot worse than today), there are companies that will do well. The company I gave as an example was Apple. I said, Apple, in the past six months, sold 13 million iPhones, and in the course of three months sold almost 2 million iPads . When you look back, the numbers are off the charts.

 MG: Did you buy Apple?

MH: We do own Apple in several of our available funds. But look, there are many many companies that are doing very well, and others that aren’t, on whom the economy is taking a significant toll. If you’re in the home construction industry, it’s a tough time, if you don’t have a college education; it’s a very tough time. But if you have a college education, unemployment is very low and there has been job expansion the last three years.

 MG: I have known you for ten years. In the last eleven years, we’ve had two very significant meltdowns, the dot-com meltdown and then the sub-prime tsunami. Were they different and did Brown Advisory have a different reaction to each of them?

MH: The common element in each was momentum. In 1995-2000 you had positive momentum in anything related to any technology. From 2004-2008 you had tremendous momentum related to the housing industry.

 MG: Which meltdown was scarier?

MH: 2008. We were talking about whether the financial system as we knew it would be able to survive. There were some scary moments in 2008, certainly when Lehman fell, but also when there were rumors that you might not be able to go to your ATM on Monday morning and get cash out. Here are some things that we’ve done at Brown Advisory, from a client and from a firm standpoint. From a client standpoint we know we can’t analyze our way out of everything. So how do you deal with that? You can’t figure out what is going to happen, you try to position your portfolio so you can withstand anything that could impact it. We’ve had the equity markets cut it in half twice in the last twelve years, I hope it doesn’t happen again, but you have to plan on it happening again, you have to have part of your portfolio in cash, in short bonds even if you are not getting a lot of interest. As a firm, the way we dealt with it was trying to be more diversified, have more investment capabilities and different types of clients, for example institutional, and within institutional, consultant as well as intermediary clients. Also now, we work with clients in 49 states and in nineteen other countries.  Hopefully by being diversified in a number of ways, we’ll be able to survive another body blow. In 2008 we didn’t let anyone go and we hired people and hope to continue that over the next few years.

 MG: Mike, Brown Advisory’s performance over the last ten years has been extraordinary.  Assets under management up 8X, the income multiple much greater. Was it planned or was it opportunistic or a little of both?

MH: There is a certain amount that you plan for, and there is a lot that will happen regardless of your plan. Much of our growth was not an accident though. We focused on performance, we focused on hiring good people, and we focused on being very independent and having an ownership structure that supports that. 70% of our equity is owned by our employees.

 MG: That’s very important to the leadership of Brown Advisory.

MH: At the end of the day, independence matters in this business. We rely on our people to talk to clients, listen to clients and try to figure out where clients want to head. Every client is different and you don’t want somebody in New York or Europe telling you what to do. Ultimately it’s up to the folks that work for us and our clients to figure that out. Every single employee owns equity in our firm. We are a private, not a public company. We have reinvested a tremendous amount in very dark times, but have had good fortune.

 MG:  Were you employee number one?

MH: Employee number two.  David Hopkins, was number one. He was a wonderful gentleman who came down from JP Morgan after retiring at the age of 65 to be the first CEO and I took over in 1998, June 30^th, the day we went private.

MG: In a few months, Brown Advisory will celebrate its 14^th Anniversary. How would you describe the Brown Advisory brand?

MH: Our brand is our people. Our people are very thoughtful in investing for our clients.  Thoughtful to me connotes listening and analysis. Investing means we are trying to make money for our clients, as we strive to make a material and positive impact for our clients no matter the market conditions. If we can be known for that, we will be in great shape.

 MG: We sweat the small stuff.  Does that describe Brown Advisory?.

MH: You know my office is next to one of the most thoughtful people in the industry, Truman Semans, who is Vice Chairman of Brown Advisory and a member of its Investment Committee. I watch people all day long, internally and externally, come into his office, looking for his counsel and advice. If we can be the firm that people call and say “What do you think?”, that’s a pretty good brand.

 MG: What’s Brown Advisory’s “Special Sauce”?

MH: We think a lot about our network, about our shareholders, our directors, the access they have to different places and people around the world. They are great eyes and ears. We think about a situation where a healthcare analyst is considering investing in a company and he’s able to call up one of our directors and say,” Can you introduce me to somebody at Hopkins or Harvard?”. In an environment where Wall Street matters less, our network is extremely valuable.

 MG: Mike, you went to UVA for your law degree then had a very successful career at Piper Marbury

(now DLA Piper)  and then the entrepreneur in you emerged.  You joined Alex. Brown Capital Advisory & Trust and it soon became private. Did some of your friends think you had lost your mind?

MH: Some of my family did. I was really lucky to work with a couple of families who built great businesses and sold them and then tried to figure out how to deploy their assets. One of the families was Howard Head’s. I watched Howard as an inventor start up two great companies, Head Skis and Prince Tennis racquets; they were his new “mousetraps.”  At the time we found that it was hard to put together a team of people to work with families. You run a company, you know your banker, your accountant, your lawyer and they all work together. As soon as you sell your company it was harder to get everybody to work together as a team. Our mouse trap was to try to build a business that could deliver that team approach, the approach of being thoughtful investors and thoughtful advisors to high net worth clients.

 MG: I hear you saying, “We need to walk in the clients shoes”.

MH: At our annual all hands meeting, we put up a picture in our slide show of a pair of shoes. I say whether you’re in IT or you are a Portfolio Manager, put on the client’s shoes.

 MG: One of your senior executives described you as a “three dimensional chess player”.  Give me your thoughts?

MH: I’ve been very fortunate to be a part of three great partnerships, Piper Marbury, Alex Brown, and Brown Advisory. Each is a three dimensional firm, with a different backgrounds, a team approach, and a drive to work together and to push each other for greatness.

 MG:  Another executive told me that your “patience and judgment” is a large part of what makes you effective.  Fair description?

MH: I don’t think that I often get accused of being patient. As to judgment, I have a great team. I think it’s important in business to be both patient and impatient. One of the biggest adjustments for me coming from the practice of law to business was to realize that my responsibility was not to solve problems today, but that I would be working on things where the ultimate success would not be determined for 1-3-5 years. So from that standpoint you have to be very patient, but from an execution standpoint, impatience is a pretty good virtue.  You have to say, “Look guys, we have to get this done today.” Tomorrow we are going to have more to do and we will have to get those things done. “

 MG:  Mike, you’ve talked about the people of Brown Advisory being a competitive differentiator.  Talk about two of them, Paul Chew, Head of Investments, and Logie Fitzwilliams, Head of International Business.

MH: Paul and Logie are excellent professionals and team members. If we were to start up a business again, they are first round draft picks. Go back in history with me and consider what we asked them to do. Paul is one of the most thoughtful investors out there. He didn’t come to me and say, “Hey I can build a better research team, or I can pick stocks better than someone else.” He came to me and said, “Mike we need to build an independent team. We may not be any better than anybody else, but at least we know that our views will be independent”. The future was looking pretty dark in terms of where someone could get advice that was independent.  In 1997, Alex . Brown was sold and a few years later Robinson Stephens and Montgomery, all those middle market firms that were sourcing a lot of great ideas, were done. Paul comes in and says “We need to pay attention to this. We need to be independent and build our own network.”

Logie Fitzwilliams,  gets out of Hopkins, works in our research group and says what we are doing in Baltimore is attractive to investors in London.  They don’t want to deal with a huge firm where they don’t understand who is making the decisions. Here was a guy two years out of school, he didn’t know whether we were better investors than anyone else, but he knew the investors in London wanted to work directly with the people looking after their money. The other thing about London was that we were determined to have an office outside of the United States. We were very United States centered and we wanted somebody outside of our country poking at us saying, “Hey there is a big world out here, listen to it!” So they were not hard decisions.

 MG.  Who are your mentors?

 MH: I’ve been incredibly lucky. I worked very closely with Mr. Ben Griswold, III who passed away a few years ago. When we started Brown Advisory, Mr. Griswold was retired.  He came downtown one day and into the front door of the building to see me very informally. He said, “Mike just because you are growing the business like Alex. Brown did, doesn’t mean we are moving all our money to you. We will give you a small account and see how your team does”. Mr. Griswold taught me to look someone in the eye and tell them exactly what you think and if you are wrong, you are wrong, but never ever equivocate from sticking to what you think is the truth. He also taught me how much fun investing could be. It could be the worst day in the market and he would call me up and say what we should buy.  Mr. Griswold was very special.

Truman Semans, who is a trustee Emeritus at Duke University, has also been very special to me. Truman, in many ways, is a family member. He has a wonderful spirit of living and enjoying life, not looking back. He has a very spiritual side, and a great business side. At eighty-five he can still calculate earnings per share in his head. He is Vice Chairman of Brown Advisory, and comes to work every day.  Truman brings in an incredible amount of new business every year and thrives in his interaction with young people.

 MG: I know Truman, he has a perpetual happy face.

MH: Truman’s face is expressing what his heart feels.

 MG: Mike, earlier we talked about you being employee number two and this year is your fourteenth with Brown Advisory. I could give you one Mulligan during those fourteen years, how would you use it?

MH: To work at Brown Advisory you need to have the DNA of an entrepreneur. We’ve attracted great people and have very low turnover, but when we’ve seen turnover, it’s been my lack of appreciation that people are different. Some people like to be a part of a large established organization and that is fine but some folks thrive on the adventure of being part of building a new business.

 MG: So you need to make sure that your due diligence is thorough on new hires?

MH. We are not a 9-5 shop. We are not a place for a passive person. But if you want to be bold, if you would not hesitate to come down in my office and say”I think we ought to do this” then we’re the place for you.

 MG: Mike, tell me about your family and your wife, Ann.

MH: I met Ann at Emory. We were in an academic program together where we got our masters in our fourth year. It was coincidental that we went to law school at Virginia and started dating in the fall of our first year. I wouldn’t be here doing what I’m doing without Ann advising and challenging me.

As to our children, they have also played a role in my thinking about the firm. There is one word that I think of often-BUILDER.  At Brown Advisory we are building a business, we are building a future, we are building an institution that can withstand the headwinds.  Our goal, my goal, Ben Griswold, Truman, Ben IV’s goal is to turn over to the next generation a great firm that will become even greater. When I think about our kids, (Emily, Lacey and Connor) Ann and my responsibility is to help them build for the future and to help them understand what’s important, and what’s not, to help them understand the joy of working, and the joy of trial and error. Some things work and some things don’t. You learn and you move on to the next opportunity.

 MG: Mike, thank you.

Jon Shaw and Carl Sardegna will join the current diverse team of  Senior Advisors to the firm.  Jon and Carl bring many years of successful start-up experience and will be invaluable in helping guide our efforts in the dynamic mid-Atlantic marketplace.

Jon’s is the CEO and Board Member at Passfaces Corporation, a strong authentication technology company specializing in graphical passwords.  He also serves as the Board Chair and Chief Development Officer at MetaSource LLC.

Carl served as the Chief Executive Officer of Green Crescent Insurance Company PJSC.(known as Green Crescent Health Insurance Co.) until August 25, 2011.  In addition to the typical duties as director, Mr. Sardegna has been actively involved in strategy, fund-raising, and business development at Green Crescent Insurance.  He served as the President of Dentalco, Inc and served as the Chairman and Chief Executive Officer of the Maryland Blue Cross / Blue Shield Plan.

Joining the Evergreen Advisory Board are Rick Geritz and Chuck Cullen.  Chuck is a principal with Grotech Ventures, one of the leading venture capital firms in the country, headquartered in Tysons Corner.  Rick has been President of two significant companies in the technology space: SafeNet and BDMetrics.  Over the last few years, his energies have been focused on the Cyber space where he has become one of the true Cyber leaders in the state of Maryland.

The Senior Advisors and Advisory Board encompasses a unique mix of seasoned entrepreneurs business innovators associated with some of the most successful technology companies in the market today.  “We welcome Jon, Carl, Chuck and Rick, to Team Evergreen.  Their backgrounds, energy and passion will make a difference as Evergreen moves forward.  Their relationships and expertise will allow us to better serve our clients.” said Mike Gill, President of Evergreen Advisors.

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About Evergreen Advisors

Evergreen Advisors is a leading investment banking and corporate finance firm focused on assisting emerging growth and middle-market companies in the areas of corporate finance, growth and exit strategies, business valuations and advisory services.  For more information, visit http://evergreenadvisorsllc.com/

With increased M&A activity, I recently sat down with Fred Funk for lunch at Frank’s Diner, next to the booth where KEYW was conceived, to learn about their strategy for successful acquisitions.

Beyond Revenue. Since its inception in 2008, KEYW (NASDAQ: KEYW) always has had as part of its model the acquisition of companies strategic to its business. In trying to understand what an acquirer is looking for, I wanted my conversation with Fred Funk, one of the founders of KEYW, to go beyond the two most obvious goals of any acquisition – revenue growth and customer acquisition. With M&A activity picking up, for any organization looking to get acquired, it must understand what makes its organization an attractive candidate. Here is a list of factors that Fred indicates plays into KEYW’s (and I suspect most organization’s) thinking about any prospective company:

Click here to read Fred’s Factors

First developed by nuclear scientists in the 1940s, the Monte Carlo method works by simulating random quantitative outcomes over many thousands of iterations. Monte Carlo analysis is widely applied across numerous industries, from manufacturing to hedge funds to the physical sciences. This technique is useful when valuing early-stage businesses because it provides the ability to estimate value based on a statistical analysis of several uncertain but correlated future events.

Assume we are valuing a technology start-up, and management has identified the drivers of its profitability as gross profit margin, product price and volume of sales. We then make underlying assumptions regarding key parameters: the discount rate, value range constraints, type of probability distribution, the variables in question and correlations between variables. These assumptions and variables are then analyzed with an algorithm, yielding an array of conclusions which provides an estimation of the most likely outcomes, as well as insight into the probability of unanticipated events. In this example, a simulation of 50,000 random trials resulted in probability-based estimates for revenue, profit margin, and earnings growth. Whereas the lack of operating history and unproven concept would ordinarily make forecasting an overly speculative exercise, we now have a statistical basis for projecting future results and developing a cash flow forecast. The results of Monte Carlo simulations are presented graphically as frequency distributions, as shown in the figure below.

A similar analysis can be used for the valuation of options, warrants or earnouts (contingent payments to the owner(s) of an acquired company) for firms with highly uncertain futures. Monte Carlo is also an effective tool in valuing securities with complicated features and in estimating volatility, a metric often used in determining discounts for lack of marketability for the equity in closely-held businesses.

In the valuation of early-stage companies, Monte Carlo simulation provides a statistical basis for modeling key variables and determining value.

Evergreen Advisor’s business valuation specialists are familiar with complex securities and have extensive experience in the valuation of early stage and mature companies operating in a broad cross section of industries. To discuss which approach or combination of approaches is appropriate for your business or our business valuation services, contact Evergreen at  410-997-6000.

 04/26 Maryland’s 24th Annual Tech Awards Celebration 

04/29 MEDA 2012 Conference

http://www.medamd.com/

05/05 2012 Howard County Heart Ball

05/15 Columbia Foundation Spring Party

06/13 ACG Deal Forum Event – Baltimore

http://www.acg.org/maryland/

Recent Events

04/11 GeekDay

04/13 Conversation with David Zipper

04/17 Accelerant at Humanim

03/26 ThinkBig Baltimore : Where are the idea hot houses?

03/15 209th Anniversary Dinner Hibernian Society

02/29 Southeast Venture Conference

02/16 Tech Cocktail DC

02/16 Think Big Baltimore: Are There Angels Among Us?

02/15 DC Tech Meet-up: Social Media

02/03 Northern Va Bisnow Data Center Outlook

01/20 Accelerant Breakfast -Washington

01/19 ACG Deal Market Update – Baltimore

01/19 Smart CEO – Future 50

12/16 Early Stage East

12/15 ACG Baltimore

12/07 NVTC Meet the Capital Players

We have posted an excerpt from Bob’s blog on this encounter.

While catching up with an old friend last week, he shared a lesson with me that he learned from the master himself, legendary CEO Jack Welch. Mike Gill is chairman of Evergreen Advisors and has been known to many in Baltimore and the surrounding communities for years. When I first met Mike, he was founder, president and CEO of Americom Telecommunications, a company he and his partner later sold.

Never one to be idle, Mike has reinvented himself multiple times, finally into his current position with Evergreen. We reconnected when Mike sent me a handwritten note congratulating me for being nominated for Corridor’s 2011 Person of the Year. While we go back some 20 years or so, our paths rarely cross, with the possible exception of seeing each other across a crowded restaurant or business event. Such is Baltimore, the village trying so hard to be a city! When we met last week, Mike seemed as full of life as ever, just the executive I remembered meeting many years ago. Honored that he remembered me, I told him that neither time nor the responsibilities of life had dulled his charm. We met briefly, but before he departed, Mike shared a little something with me – something he lives by every day and that I too will now incorporate into my daily life. “The Big Six,” from Jack Welch. I think I’ve read it 100 times since Mike pulled it out his pocket and gave it to me with such pride that you would have thought it was a great stock tip! Or maybe better!

Read more to find out the Big 6

A couple of weeks ago I was watching the CBS final round telecast of the Waste Management Open from Scottsdale, Arizona. At the beginning of the days round, Kyle Stanley, a second year player from the state of Washington who went to Clemson, was eight strokes back. All Kyle did was shoot a final round 64 and at the end the day was raising the crystal and the check for over a million dollars that went with it.

 As Kyle was playing the final hole, analyst and hall-of-famer, Sir Nick Faldo, made this comment, he said, “Real happiness is great health and a short memory.”  It had only been seven days since Kyle Stanley experienced a “golf meltdown”, witnessed by millions.  He entered the final round play of the Farmer’s Insurance Open with a six stroke lead. On the final hole, still leading by three and just 90 yards from the flagstick, he could take five more shots to get it in the hole and win the tournament. He took six……and lost in a playoff.  He was devastated, overnight he became the most talked about golfer in America for all the wrong reasons.

 Life is amazing and how we react to the hand that is dealt us determines EVERYTHING.  Not too many weeks ago we had our Annual Kick-Off Meeting at Evergreen. I had a number of posters made up that decorated the walls of our conference room. I “borrowed” one of them from the famous American essayist and author, Ralph Waldo Emerson.

“A hero is no braver than an ordinary man, but he is braver five minutes longer”

 There is no time-frame or time-limit on achieving success. Jim Valvano, the late basketball coach of the national championship N.C. State Wolfpack and one of the most dynamic and characteristic coaches ever in the game said this on the ESPY awards just weeks before he died of cancer, “Never Never Ever Quit, he went on to say, “Don’t give up, Don’t even give up.” He went on to say that each of us needs to do three things, we need to laugh, we need to think, we need to cry because of the joy we feel.”

 Life is not a dress rehearsal….make everyday count!

About Evergreen Advisors

Evergreen Advisors is a leading middle market investment bank and advisory firm focused on assisting companies in the areas of corporate finance, growth and exit strategies, business valuations and CFO advisory services.

Roderic Hodges has joined the firm as an Analyst in our Corporate Advisory – Business Valuations Practice.  He brings several years of experience in technology, energy, and industrial clients.  Roderic received his Bachelor of Arts from the University of Hawaii and his M.B.A. from The Carey Business School at Johns Hopkins.

“The addition of Roderic Hodges reflects Evergreen’s commitment to our growing Business Valuation Practice.  We look for him to be an important contributor, particularly in serving our emerging growth customer base,” according to Donni Engelhart, manager of the Evergreen’s Business Valuation Practice group.

Mary Harris has joined the firm as Office Manager bringing over 15 years of Office and Event Management experience.  Mary will be responsible for handling the day-to-day operations and client service activities. Mary holds a Bachelor of Arts from Dickinson College.

 “I am thrilled that Mary has joined the Evergreen team.  She brings a versatile, client focused, administrative skill set that will be able to assist our growing team.” said Shelley Lombardo, Vice President of Marketing.

 Griffin Cole has been promoted to an Investment Banking Associate and will be taking on an expanded role in the Washington / Northern Virginia Office developing and executing transaction strategies for clients.

 “Griffin plays a critical role in supporting our clients in this market.  His analytical ability and dedication to our clients will contribute greatly to our service focused culture,” stated Joseph E. Statter, Managing Director.  Griffin started his career in Evergreen’s Corporate Advisory Practice focusing on Business Valuations including valuing ownership interests in entities holding real property and investment assets, as well as companies engaged in industries such as technology, healthcare, defense and construction.  Griffin holds a Bachelor of Sciences degree in Finance, from Virginia Tech, with a focus in Corporate Finance.

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About Evergreen Advisors

Evergreen Advisors is a leading investment banking and corporate finance firm focused on assisting emerging growth and middle-market companies in the areas of corporate finance, growth and exit strategies, business valuations and advisory services.  For more information, visit http://evergreenadvisorsllc.com/

• Transaction activity is up for mid-to-small sized deals. In 2011, the volume of M&A transactions under $250 million actually recovered to 2006 levels; smaller transaction (under $50 million) volume increased relative to 2010, but remain below mid-decade levels.

• Leverage is on the rise, particularly for larger deals.  Leverage ratios (total debt/EBITDA) approaching have been observed 5x for transactions involving companies with EBITDA in excess of $10 million.  For smaller transactions (under $10 million), leverage ratios ranging from 2.5x to 3.0x EBITDA were observed – last seen pre-crash.

• Lending has increased.  One panelist noted that community and regional banks have become more creative in providing financing for companies in the $5-10 million EBITDA range as they aggressively seek earning assets.  Senior debt multiples have increased from the lows of 2009 as commercial banks seek quality loan growth.

• Regional transaction activity rebounding. Transaction activity involving middle market firms in the Mid-Atlantic region has recovered to 2006 levels, though remaining 15% below the peak of 2007.

The panelists offered optimistic outlooks for M&A activity in 2012, as investors and business owners seek to take advantage of cash-laden strategic and financial buyers, as well as the more favorable capital gains tax rates in place through year end.

Evergreen Advisors has experienced an increase in business from owners seeking counsel from our investment banking group for transaction advice, as well as business valuation advisory services for clients seeking to take advantage of the $5 million gift tax exemption for estate planning scheduled to expire December 31, 2012. Please contact Greg Huff at 410-997-6000 ext 233 for a confidential discussion of your options.

To prevent heart disease and increase awareness of its affects, Evergreen Advisors is proudly supporting American Heart Month and the 2012 Howard County Heart Ball being held on Saturday, May 5, 2012.

To kick things off, this Friday is National Wear Red Day®.  Join with us in wearing red on Friday as we join in this national rally for our health.