Rodman & Renshaw says Cosco a key addition to business; investment bank remains keen to acquire

By Kenneth Lim

Boston, May 12 - Rodman & Renshaw Capital Group, Inc. said the oil expertise of Cosco Capital Management LLC is just what it wants in its latest acquisition, but the investment bank has not left the acquisition trail.

"I think our competitors will be watching us for us," Rodman & Renshaw chief executive Michael Lacovara told Prospect News. "We will not acquire a firm unless we think it will make us as successful in the oil and gas arena as we have been in the biotechnology arena, and we believe Cosco is going to take us to that level of penetration."

New York-based Rodman, a PIPE specialist, will pay $8.1 million of the deal consideration at closing and the remaining $2 million over the next two years, the company said in a statement. Rodman will also pay up to $4 million over the 21-month period following closing depending on revenue from contracts that will be acquired from New York-based Cosco, and it will also make incremental payments based on performance targets in the two years after closing.

Rodman said it expects the deal to be earnings-accretive in 2008.

As part of the acquisition, Rodman will create an energy group within its business to continue and expand Cosco's existing investment advisory and finance practice for companies and funds active in the energy sector. Cosco founder and senior managing director Cameron O. Smith will lead the group.

"I am delighted to bring Cameron Smith and his Cosco colleagues to Rodman in a transaction that joins Rodman's leadership in the PIPE transaction market with Cosco's decades of experience in the energy sector and expertise in private finance to oil and gas and other energy companies," Lacovara said in the statement.

"This acquisition in energy finance, much like last month's acquisition of Miller Mathis in steel and resources, continues the execution of our strategy to strengthen and broaden our franchise. We are expanding geographically to be closer to our clients and we are adding expertise in select verticals whose growth prospects and capital intensity play to our unique public and private financing capabilities."

Smith said in the same statement, "We are excited to bring our distinguished energy practice to Rodman. In addition to benefiting our current and future private clients through expanded monetization capacity and general access to private capital at hedge funds and other institutional wealth managers, we see significant near-term growth potential through the ability to offer Rodman's world-class PIPE capabilities to our host of friends who manage public energy companies worldwide. The merger of our firms also enhances materially Cosco's initiatives in energy secondaries and direct investments."

'PIPE-friendly verticals'

Speaking to Prospect News, Lacovara said the deal was a key part of Rodman's plan to expand its business.

"We think it's very important," he said. "When we raised capital last fall, it was with the express purpose of finding partners who will help us find PIPE-friendly verticals. ... We believe that Cameron's business at Cosco was exactly what we were looking for."

Rodman had been looking to acquire a foothold in the energy sector and knew some people who knew Smith, Lacovara said.

"I, as a matter of practice, don't talk about the issues of negotiations, but in any negotiations the two main issues are always price and responsibility, and I think we had a very easy discussion on those," Lacovara said.

For Cosco, which has mostly helped private companies to raise money, the deal will give the firm access to public companies as well, Smith said.

"We've been doing private placements for private companies for the past 17 years ... so we sell to the most knowledgeable people in the energy business," Smith said. "But Rodman also does public investments, and it's just terrific."

Canadian opportunities

Rodman will inherit Cosco's Canadian operations as a result of the deal, and it expects to become a registered securities dealer in Canada by year-end.

Smith said that the Canadian oil and gas sector has been finding it hard to raise money over the past year, but those who know the space well know that there is money to be made.

"The reason why it's so hard for Canadian companies to raise money now is that the markets in Canada have been pretty much dead in the past 18 months," he said. "There's very little movement there, and there's very little that's written in the U.S. that's positive about the markets there, so a lot of investors here think there isn't much there. But it is replete with opportunities if you have cash and your neighbors don't."

Rodman looking for more

Rodman's appetite may not be sated with Cosco, Lacovara said.

"We have said publicly that we will continue to be an acquirer," he said. "We are looking for doable, secular growth, in capital-intensive industries."

Rodman is a holding company that, through its various subsidiaries, is engaged in the investment banking business.

Cosco is a specialist in oil and gas investing and private placement financings for private and public energy companies.

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