For years, Charles Botchway had a pitch for the investment bankers at bulge bracket firms: send us the deals that are too small for you to handle yourself. Botchway is the founder and CEO of Madison Street Capital, a Chicago-based firm specializing in lower middle market deals.
Inevitably, he got a polite reception but no mandates. Then he discovered that the way to get investment banking deals from the big firms isn’t to go through their bankers but their wealth managers.
The clue came from a conversation last year between one of Madison’s managing directors and a friend who is a broker at UBS.
“We’d never thought about wealth managers,” Botchway says. “But they all manage money entrepreneurs that eventually want to exit their business.”
UBS’s wealth management unit, it turns out, had deals with about two dozen firms that handle middle market transactions for its clients. That was a list that Madison wanted to be on.
Mr. Botchway, who was born in Ghana, connected with a group of African American brokers at UBS and eventually was introduced to the people in New York who run the program. The bank spent more than six months doing due diligence on Madison Street and negotiating an agreement.
By the beginning of 2021, everything was in place, and Madison started receiving mandates from UBS. While none has closed yet, several are actively being worked.
“It’s been a great relationship,” Botchway says. “The folks who run the program are a joy to work with.”
The recognition from Wall Street has been a long time coming for Botchway. He started Madison Street Capital in 2010 with 120 people who split off from Houlihan Smith & Company, where Botchway was vice-chairman and group managing director.
At Houlihan Smith, Botchway says he built the advisory business from five people to 150 in about five years.
“When we decided to go our separate ways, with a little bit of hubris, we assumed we’d pick up right where we left off,” Botchway says. “It didn’t quite work that way.”
Looking back, Botchway says he underestimated how much the prior firm benefitted from the reputation of Richard Houlihan, who had started Houlihan Lokey, the Los Angeles-based investment bank, before Houlihan Smith.
“There was very significant value in the Houlihan name,” he says. “So we had to put our nose to the grindstone and build a brand. It’s taken us a while, but we think we’ve gotten there.”
There were twists and turns along the way. Madison Street opened two offices in India only to close them several years later.
“It’s a big opportunity for both M&A and capital raising, “Botchway says, “but we didn’t have the time to spend on planes going back and forth.”
Madison Street does maintain an office in Accra, mainly focused on raising foreign capital for Ghanaian businesses.
Ultimately, Botchway says that Madison Street has embraced a slower pace of business than the breakneck growth of Houlihan Smith.
“Most bankers will meet a client and start by talking about the market and what multiple they can get, especially this year when things have been pretty frothy,” he says. “We differentiate ourselves by first understanding why the entrepreneur now wants to sell the company they’ve built up over the last 15, 20, or 30 years.”
This sort of conversation helps Madison Street build a connection with its clients. “Most decent people don’t work for money,” he says. “They work for the things that the money allows them to do.”
Today, the firm has about 60 people with its U.S. offices in Chicago, Atlanta, and Austin, where Botchway has moved with his family. About two-thirds of its business is sell-side M&A advisory. The rest is corporate finance. Most of its deals are between $20 million and $100 million.
This year, for example, Madison Street represented Gausman & Moore, a Minneapolis engineering firm, in a merger with Ayres Associates, a similar firm in Eau Claire, Wisc. And it advised Innovative Fluid Handling Group, an oil tank maker, on the sale of its west coast operations to Cobalt Development in Arlington, Wash., and the rest of the company to The Mendota Group, a private equity firm in Madison, Wisc.
Botchway says that Madison Street has found its path. It’s building relationships with wealth managers and more bulge bracket firms. And it has become well known among the accountants and lawyers who work with family-owned businesses.
“A lot of boutiques that are started by senior folks from larger firms start with smaller deals and want to move upmarket,” he says. “That leaves a dearth of well-resourced capable banks serving the low end of the middle market. That’s the largest piece of the U.S. economy. So we decided that’s going to be our very big niche.”