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Buzz Around Roth Capital Shows Small-Cap Is Big

Stocks: The Newport Beach investment banker is aiming to become a regional powerhouse.


The stock market may be anemic, but life couldn't be better for Roth Capital Partners LLC, a Newport Beach investment banking firm.

There's a lot of interest in Roth Capital's annual growth-stock conference this week in Dana Point since Roth is making overtures to become one of Southern California's premier investment banking companies.

Zions Bancorporation recently bought a stake in Roth, creating a buzz around the two-day conference. Rock band Smash Mouth played Tuesday evening at the conference, which caters to putting small-cap stocks in the limelight.

More than 1,700 company executives, mutual fund managers, venture capitalists and others attended the conference at the posh Ritz Carlton-Laguna Niguel nestled on the seaside cliffs of Dana Point. The attendance beat last year's record of 1,300.

Why the interest in Roth Capital? For many here, the answer is simple. Roth is the only game in California that serves companies with less than a $500-million market capitalization, which is a company's value based on the number of shares times the stock price.

"All the others have moved upstream," said John Dalfonsi, chief financial officer of GlobalEuroNet Group Inc. in Los Angeles.

Also, "Roth has the potential to become the premier investment banking company here in Southern California," said Glenn Powers, a high-tech analyst retiring from Roth Capital later this week.

In recent years, many investment banks in the West have gone by the wayside, said Dalfonsi. He pointed to a number of takeovers of investment banking operations, including First Security Van Kasper by Wells Fargo & Co., Robertson Stephens & Co. by FleetBoston Financial Corp., Hambrecht & Quist by Chase Manhattan and Montgomery Securities Inc. by Nationsbank Corp., which later merged with BankAmerica Corp.

A Full-Service Investment House

Since Roth's founding in 1984, the boutique firm's core business had been underwriting small-cap stocks. But that enterprise didn't pay the bills like it used to. The culprit: waning investor appetite in public offerings for small companies and changing regulations.

Today, Roth Capital, formerly Cruttenden Roth, likes to picture itself as a full-service investment house where small-cap companies can come for venture funds, private stock offerings and merger and acquisition consultations.

In late 1999, Roth bought a majority stake in Inc., a research firm in Portland, Ore., that follows the much-ignored micro-cap sector, giving it some more visibility in that market.

Roth Capital's make-over seems to be taking hold. In 1999, for instance, Roth Capital did 20 public offerings and raised more than $764.7 million.

Last year, public offerings fell to a fraction of that amount as other transactional business took off. Over the past two years, the company has done 44 private placements raising $430 million, and 42 mergers and acquisitions.

The growth in the transactional business caught the eye of inquisitive Zions, which in February agreed to acquire a 24.5% stake in Roth Capital for $16.5 million.

The agreement came less than a year after Zions shareholders rejected a merger with another financing and investment banking business, First Security Corp. in Salt Lake City, where Zions also is headquartered.

Robert Sarver, chief executive of California Bank & Trust, which is Zion's banking operation in California, is thankful the First Security deal fell through and is excited about Roth. Sarver and Patrick Allen, Roth's president, say they already are getting traction on the Zions investment after barely a week together.

A cross-referral program between Roth and CB&T already has yielded some results. The program provides incentives to employees of each firm to refer business to each other, such as Roth directing its clients to transfer credit lines to CB&T or make deposits.

Additionally, CB&T, which is California's sixth-largest bank with more than $7 billion in assets, will refer transactional business for its significant commercial business that it already has tucked under its belt.

As a major small business lender, Sarver likes the benefits of combining CB&T's booming small business unit with Roth's focus on helping small-cap stocks.

"All companies that are big started off small," he said.

Conference Offers Chance to Cut Deals

Meanwhile, it's the Roth small-cap conference that everyone looks forward to annually--not to hear Smash Mouth, the Beach Boys or some other rock band and rub shoulders with executives, but rather to cut deals.

Just Tuesday, Allen, Sarver and Byron Roth, majority owner of Roth Capital, were rushing from one meeting to another with prospective clients at the Ritz Carlton. For instance, one computer appliance company, which Allen and Sarver declined to identify, was trying to raise $10 million.

"This is all about serving customers," said Allen. "A slowing economy impacts everybody's business, but there are still a lot of good companies out there. This is all part of a huge niche that we serve."

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