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Emanuel J. Friedman and Eric F. Billings

When the Big Banks Balk, FBR Embraces Unconventional Transactions

By Terence O'Hara
Washington Post Staff Writer
Monday, December 27, 2004; Page E10

Emanuel J. "Manny" Friedman and Eric F. Billings have run their Arlington-based investment bank like a work in progress since they founded it in 1989.

By tinkering and trying things that the vastly bigger Wall Street banks can't or won't do, they have occasionally hit on a gold mine. In the early 1990s, they recapitalized more than a dozen ailing banks and thrifts with stock-rights offerings. They rushed into technology venture capital in the late 1990s and made a bundle, then got out of it just as fast when the market crashed.


Eric F. Billings co-founded Friedman, Billings, Ramsey Group in 1989. FBR has raised more than $2 billion for 14 companies this year through initial public offerings of stock. (Mike Appleton -- Bloomberg News)

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Venture Capital Section

In 2004, the mid-size Friedman, Billings, Ramsey Group hit its latest sweet spot. Friedman and Billings mined a deep vein of investor hunger for financial services and real estate investment trust stocks. The first three quarters of this year were FBR's best in its history, making it the sixth-most-active IPO underwriter in 2004.

It led or co-managed 14 initial public stock offerings in 2004, raising more than $2 billion, compared with eight such deals that raised $2.1 billion in 2003, according to Dealogic, an IPO research firm. If secondary offerings of stock -- underwritten offerings by companies that are already public -- are included, FBR led or co-led 26 deals, raising $3.2 billion. Most of FBR's 2004 deals were for real estate finance companies, such as real estate investment trusts, or insurance companies.

But volume is not what put FBR on the map in the capital markets. FBR raised billions in oddball transactions that larger banks avoided.

One unusual transaction transformed their own firm to a real estate investment trust in 2003. The pair founded the firm in 1989 with W. Russell Ramsey, who left the firm in 2001 to start his own private equity fund.

Two examples of FBR deals stand out:

This summer FBR was instrumental in the transformation of Aether Systems Inc. The Maryland wireless data software company went public in 1999, but its business strategy faltered. FBR's investment bankers convinced Aether's board to pursue an unconventional strategy of selling Aether's operations and turning it into a mortgage securities investment fund. Aether's board decided this was the best way to keep shareholders from losing more money and to unlock tax-related benefits laying dormant in its balance sheet. FBR sold the company's operating subsidiaries (for a fee) and is now advising (for a fee) Aether on its investment strategy.

Another deal this summer highlights FBR's growing prominence among private equity players. Kohlberg Kravis Roberts & Co., the New York leveraged-buyout fund, started the year hoping to create a newly public company to make loans to mid-size corporate buyout firms. But when that effort fizzled mid-year, FBR persuaded KKR to form a REIT and raise capital through a type of stock known as a 144a, which is sold in private sales to well-heeled investors or institutions. FBR raised $750 million for KKR Financial Corp. in August. FBR raised $1.8 billion in five 144a offerings.


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