Insights

FT: The Psychiatrist of Finance

  • December 18, 2012

By David Gelles

On a recent afternoon in midtown Manhattan, Peter J. Solomon was walking along Madison Avenue with Ken Berliner, his friend and the president of his eponymous boutique investment bank.

As the two men strode past luxury shops they saw one of their top young associates, a woman with enormous promise, walking towards them. Her head was down, she was staring intently at her smartphone screen, and she was so engrossed that she walked directly between her two bosses without noticing them.

“I reached out and hit her!” Mr Solomon remembers. “I told her: ‘You just walked between the chairman and the president of your company. Are you going to observe the world around you, or ignore it?’ ”

Mr Solomon harboured no animosity towards his associate and the two laughed it off later. But his reaction to her distractedness speaks to a central tenet of Mr Solomon’s business philosophy. In an age of nonstop emails, he still places tremendous value on the nuances of human interaction.

“One of the things you have to be able to do in our business is read faces and body language,” he says. “What we do is like financial psychiatry.”

This approach has worked so far. The 74-year-old has been at the helm of the Peter J. Solomon Company since he founded it in 1989, advising a long list of clients that includes Sony, Office Depot and Walgreens on acquisitions, sales and financings.

It is not that Mr Solomon is opposed to technology. “Everybody’s always on their iPad, including me,” he says. “I’m on it all the time. My wife is on it all the time. You make yourself unbearably productive. It’s like what Oscar Wilde said: ‘I can resist anything but temptation’.”

Yet, even as the firm buys and sells companies for high-tech businesses such as Cablevision and eBay, Mr Solomon instructs employees to limit email usage when discussing internal conflicts, eschews video conferencing and makes a point of paying agenda-less, in-person courtesy visits to long-time clients. This focus has paid off. Asked to name his favourite deal, Mr Solomon does not use the prompt as an opportunity to praise one of his regular fee-payers. Instead, he recalls a trip to Wisconsin a decade ago.

The CV

● Born: 1938, New York

● Education: BA and MBA, Harvard

● Career: 1963-77 investment banker at Lehman Brothers

● 1978-80 Deputy mayor of economic policy and development in New York City

● 1980 Counsellor to US Treasury

● 1980-85 Lehman Brothers

● 1985-89 Vice-chairman board member at Shearson Lehman Hutton

● 1989 Founds the Peter J. Solomon Company

● Directorships: Monro Muffler Brake, American Museum of Natural History

● Interests: US folk art, early US history, children’s book manuscripts

● Family: Married with five children

Mr Solomon flew to the sleepy Midwestern state to meet Gary Comer, co-founder and then head of the apparel maker Land’s End. He had never advised the company before but a mutual friend had made an introduction, explaining that Mr Comer was at a crossroads.

The meeting took place on Mr Comer’s private ranch. “You flew in, landed on the airfield and the plane went into a hanger,” recalls Mr Solomon. “Then you got into an elevator, which took you into the house. It was like Dr No.”

For hours the two chatted away, observing the scenery outside, as Mr Comer told his story. “I spent hours talking to him, listening to him,” Mr Solomon recalls. But it took some time before the topic of selling Land’s End even came up.

“When I go see people I almost never get around to business in the first half hour. At the end I asked him what he thought he should do with his business and he said, ‘I guess I should sell it’.” Soon after, Sears Roebuck & Co paid $1.9bn in cash for it, a 22 per cent premium.

Had Mr Solomon not struck out on his own, it is hard to know whether he would have been in a position to follow his nose, chasing a deal in the Wisconsin Dells. Yet he seemed destined for some measure of independence after his promising career ran headlong into one of the biggest and most contentious deals in history.

In the late 1980s he was vice-chairman at Shearson Lehman Brothers, where he had just raised a $1bn fund for leveraged buyouts. But – in an episode chronicled in Barbarians at the Gate, the seminal book about the RJR Nabisco deal – Mr Solomon had a falling out with his boss, Peter Cohen. According to the book, the “boisterous, bullying” Mr Solomon sought to “establish a personal fiefdom and get rich at the same time. He sought to claim a sizeable piece of the fund’s profits, something to which Cohen was staunchly opposed.”

But, as Mr Solomon tells it, Mr Cohen wanted to use the $1bn fund for the RJR Nabisco deal. “Both men were headstrong and temperamental,” the book’s authors wrote.

Either way, he soon found himself on the sidelines of the deal and his future at the firm less clear. “I left finally because I immodestly believed I would one day be head of Lehman Brothers,” he says.

When he realised that was not going to happen, he decided to build his own business. “I didn’t want my reputation or my net worth dependent on people I didn’t really know trading securities I didn’t understand in time zones I rarely visited.”

In setting up a firm with his own name splashed across the door, Mr Solomon was taking a bet that his personal relationships were plentiful enough to sustain a new career. He brought several clients with him from Lehman and found early success in the UK. Burton, the high street retailer, and the publisher Reed Elsevier Group were early clients that helped establish his company’s name.

The Peter J. Solomon Company would become the first boutique investment bank focused exclusively on mergers and acquisitions. “I set up this firm to run against Goldman Sachs,” he says. “I thought the idea that you could be all things to all people was a failed idea.”

Although Mr Solomon’s firm has never come close to Goldman’s size or stature, he has not shied away from criticising what he sees as a fundamental moral imbalance at banks that provide advice, financing and trading services.

“There are inherent conflicts in the major firms,” he says. He adds that investment banks argue they must simply explain to clients why the conflicts are good for them. “But I allege that there is no time in history that conflicts are good for them,” he says.

For many years Mr Solomon’s arguments fell on deaf ears. “The first 10 or 15 years no one had any idea what I was talking about,” he says. Now, however, boutiques are in demand.

Mr Solomon’s deal list features some low points. He advised Office Depot on its proposed $4bn sale to Staples, a buyout that was blocked by the Federal Trade Commission on antitrust grounds. “That’s the most frustrating,” he says. “The government got it wrong.”

He was working with Tokyo Electric on a deal when the tsunami hit early last year, putting an end to that. He advised Office Depot on its $2.7bn purchase of Viking Office Products, a deal that turned out to be overpriced.

More recently, however, two successful deals came to fruition after years of work. Solomon advised McKesson on its purchase of PSS World Medical for $2.1bn after 15 years of work, and advised Phillips-Van Heusen on its $2.9bn acquisition of Warnaco Group after seven years.

Mr Solomon’s office is cluttered with pieces of American folk art, reflecting his interest in US history. There is a giant wooden pig that some junior bankers thought might offend clients, a tall native American sculpture at the door and moveable duck-shaped sculptures hanging from the ceiling. And though Mr Solomon has many of the trappings of a successful investment banker – he has a taste for tailored suits – there are hints of irreverence: on his wrist is not a Rolex but a pink plastic watch.

“The best speech I ever gave was called ‘Sense and Nonsense’,” he says. “To be a good investment banker you have to have a good sense of the absurd.”

This perhaps helps explain his collection of illustrations featuring Peter Rabbit, Alice in Wonderland, The Wizard of Oz and Maurice Sendak’s Where the Wild Things Are. “As one of my friends once said, you should take your business seriously but not yourself.”

Copyright The Financial Times Limited 2012.