Weather | Sports | Forums | Comics | Classifieds | Calendar | Movies

Dain Rauscher buys underwriter Hough

The subsidiary of the Royal Bank of Canada hopes the acquisition of the St. Petersburg institution will open the Southeast for it.

ST. PETERSBURG - William R. Hough & Co., a leading underwriter of Florida municipal bonds and a St. Petersburg institution for 40 years, is being acquired by RBC Dain Rauscher, a subsidiary of Royal Bank of Canada.

Dain Rauscher, which is headquartered in Minneapolis, plans to use the acquisition as a springboard to expand its investment banking and retail brokerage services in the Southeast.

Terms were not disclosed in the announcement Tuesday. The Hough & Co. name will disappear as the St. Petersburg operation becomes a regional office of Dain Rauscher.

No company has done more public financing deals in Florida than Hough & Co., which has underwritten 2,400 new issues, raising $69-billion over its 40-year history. It financed projects such as Tropicana Field in St. Petersburg, the St. Pete Times Forum in Tampa and Pinellas County's garbage-to-energy incinerator. The numbers include many deals too small for the big Wall Street firms to consider.

The combined Dain Rauscher and Hough & Co. will be the largest U.S. underwriter of "middle-market" deals, those smaller than $50-million.

Hough & Co. also has developed niche markets underwriting bonds secured by pools of federally guaranteed student loans and bonds financing low- and moderate-income housing.

Founder William R. Hough, 76, said Dain Rauscher approached the company early this year. He said he left the decision of whether to pursue a sale up to his children, Robb Hough, 52, and Helen Hough Feinberg, 42, both company executives. The Hough family owns about 60 percent of the private company's stock, with the rest held by nonfamily employees.

About 40 of the 200 employees in St. Petersburg will lose their jobs when the company's back-office operations are transferred to Dain Rauscher. Hough said the deal includes "above market" severance packages for them. He said employment in St. Petersburg probably will expand as Dain Rauscher's Florida presence grows.

Hough said shareholders were unanimous in their support for the sale, which was at a "very handsome" premium above book value. He said company managers, professionals and salespeople had the opportunity to buy stock over the years, and several own $3-million to $4-million worth.

"I started this firm 40 years ago with $130,000 in capital and now we have $52-million in capital, all of it retained earnings," he said. "I'm immensely proud of what has been accomplished here by the whole team. We had high standards, and we have been successful. It is time to move up into the big leagues, and that's what we're doing."

The deal, which is subject to regulatory approval, is expected to close around the end of February.

Robb Hough said he had mixed emotions about selling the company.

"For months I couldn't imagine doing this, losing the name, the tradition, my job," he said. "I'm not going to be the chief executive any more. The role Hough & Co. has played in this community is something that I've thought about a lot."

Ultimately, Robb Hough said he decided it would be worth giving up the Hough & Co. name to be part of a much larger company. He said Dain Rauscher can offer Hough customers access to bank loans and sophisticated products such as interest rate swaps used to manage risk. He said the Dain Rauscher brand also should be a competitive advantage in markets where the Hough name is not well known.

"In the student loan business, we have a group and a platform that can give UBS and Citigroup a run for their money, and we're excited about that," he said.

On its own, Hough & Co. has had only modest success getting into the retail brokerage business, with 25 brokers in five locations. Dain Rauscher is the eighth largest full-service brokerage firm in the United States, with 1,900 brokers. It is the ninth largest municipal bond underwriter.

Royal Bank of Canada acquired Dain Rauscher three years ago and expanded it with the acquisitions of Tucker Anthony Sutro, First Institutional Securities and Jones & Babson.

Robb Hough said he likes Dain Rauscher's Midwestern culture and thinks Hough & Co. will be a good fit.

"They're straight-shooting people, honest and ethical," he said.

Robb Hough will oversee the student loan business and run Dain Rauscher's Florida operations from St. Petersburg. His sister will head the company's housing finance business. Bill Hough said he will join Dain Rauscher as a part-time employee after the sale of another of his holdings, Republic Bank, has been completed.

Bill Hough declined to say what he will do with his many millions in proceeds from the sale other than "pay income taxes." Noncompete agreements prevent him from taking a stake in another banking or brokerage venture, and he said he cannot comment on any future charitable contributions.

Hough & Co., the Hough Family Foundation and the Houghs personally have been major supporters of the arts and education. Bill Hough has been recognized as "Mr. Sun" for his civic work, to which he plans to devote more time. He said he currently is involved with the Salvador Dali Museum, the Palladium Theater, Eckerd College and the University of Florida.

Robb Hough said he expects Dain Rauscher to continue the company's tradition of sponsorships and charitable contributions, but "whether it continues at the same level, I don't know. What we've done has been beyond what anyone would do for business reasons. The Hough family will continue to support the community. I hope five years from now people will not feel that the community has been shorted."

Two Hough affiliates are not part of the transaction: WRH Realty Services, a property and construction management company, and WRH Income Properties, a real estate investment company.

- Helen Huntley can be reached at huntley@sptimes.com or 727 893-8230.

William R. Hough & Co.

HEADQUARTERS: Minneapolis.