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QHow has Simmons changed since it was founded?

AFrom a business point of view, we expanded from oil service corporate finance to energy corporate finance, institutional sales, research and trading. We are now a full service energy investment bank covering the gamut of energy including midstream/downstream, E&P, coal, tankers, and alternative energy.

Culturally, our four original goals: specialization, highest quality, staying small and having fun remain intact. Underlying all of this is an overall focus on integrity - if you specialize and you slip up - you have had it! None of that has changed.

Further, we remain dedicated to the team approach: everyone in the firm is compensated according to how we do overall. The "deal"-oriented system that resulted in such conflicts at other firms has never existed here.

QIs it accurate to describe Simmons as a "boutique" or a regional investment banking firm?
ABoutiques and regional firms do business in an area defined by a geographical area or transaction size. We may be highly specialized, but we work on large and small deals. The energy industry as a whole is an international business, and roughly 30 percent of our business is outside the United States. In any given week, there is usually a Simmons executive on a plane to some far part of the U.S. or to another country. We set up our Aberdeen-based affiliate in 1998 to service both the European marketplace and Eastern Hemisphere and that affiliate has now opened an institutional sales, corporate finance, and research office in London. When talking about Wall Street, we do not compare ourselves to the firms, per se, but only to their energy groups' capabilities. In that company, we are clearly one of the largest.
QDoes a client's project ever become so large or complex that the client needs the assistance of a Wall Street firm as opposed to Simmons & Company?
AIf we ever think that it makes sense for our client to add some other capability, we hope we're the first to recommend it. However, in the majority of projects, doubling the size of a team makes the project more cumbersome. We are one of the few small investment banking firms that clients don't have to leave as their needs grow. We have as much deal experience as anyone, and Wall Street firms don't necessarily bring more to the party. We've handled both ends of the spectrum--transactions from $10 million to over $8 billion working to the same standard of excellence regardless of size and with the same level of senior involvement.
QWhile Simmons & Company knows a great deal about energy companies, how good is the firm at executing complicated investment banking projects?
AThe depth and quality of our financial models, the detailed understanding behind our analysis and our reading of the financial markets throughout the energy sector are second to none. On top of these skills is a deep sense of how and why executives in our industry make complex financial decisions. Combining this talent with our in-depth industry knowledge is what makes our investment banking advice so good. Our repeat business and long term client relationships clearly reflect this.
QHave you encountered conflicts between your corporate finance business and your institutional securities business?
AWhen we launched the institutional securities business in 1993, a number of friends of the firm questioned our decision, believing that it would compromise our reputation. Feedback from our institutional clients directly or through surveys, like that done by Greenwich Associates confirms that they see no conflicts. We are totally committed to the highest quality research, and that includes correct analysis, even if it means that some of our corporate clients don't like where they appear in the rankings. Our compensation system also works to avoid conflicts.
QDoes your relatively small institutional sales force have placement power?
AThere are 100 institutions in the United States that own over 50 percent of the entire oil service industry and over one third of all energy market capitalization. We do business with virtually all of them. We do have a relatively small sales force, but each individual on it knows as much about the oil service industry as most oil service analysts because that is all they sell. These institutions welcomed our move to broaden our energy coverage. It is also important to understand that we have no outside retail clients: our market focus is sophisticated money managers and their research analysts. Our energy industry specialization is working just as well for our institutional sales as it has for corporate finance since we were founded.
QWhy has Simmons broadened its focus to energy overall?
AOur focus has gradually widened to encompass both downstream and E&P since they are influenced by the macro factors we follow closely. This was driven initially by demand from our institutional clients, but our Corporate Finance business quickly followed. I dare say we cover a wider cross section of the energy industry, in greater depth, than any of our competitors.
QHow has Simmons & Company International become the leading co-manager in oil service offerings?
AA. We have established this position because our corporate clients understand the value that Simmons' specialized knowledge brings to the planning and selling process of an offering. The key institutional buyers understand the value that our specialization brings to the buying process. From the start-up of our securities business, our goal was to become the co-manager of choice for all three parties involved in an offering: the company raising the money; the institutions who are being asked to put up the money; and the lead manager who needs a knowledgeable, hardworking co-manager to support his effort. All three win, and we think this strategy is working well.
Q
Is a co-manager important in an offering?
AThe majority of co-managers do very little work. However, we know that being an active co-manager is essential to an offering both in terms of marketing support and the research effort. For example, where an institution may allot 30 minutes or so to hear what a company's management has to say about the offering, they will give our securities group much more time because they want to question us on the industry, how the company fits within it, how the company's management compares, etc. Given how busy they are, the fact they are willing to meet with us on a specific offering indicates that institutions believe there is significant value in having Simmons & Company input.
QWhen does it make sense to talk with Simmons & Company about doing a public offering?
AOur experience has been that the earlier a company begins a dialogue with us, the more useful the advice we can give them about the overall process, including valuation, timing and how one should best select the lead. In some of our most successful offerings, we began advising our clients over a year before the lead and co-manager were selected and the offering finally occurred.
QHow does your deal flow develop?

AA tremendous amount of our business is referral. Also don't forget our senior and mid-level executives have been in the business a long time. Some of our personal relationships go back decades.

And, of course, with the large number of transactions we have under our belt, we have a very broad based reputation for our investment banking expertise, our contacts and our knowledge of the industry. We are the "go to" guys if you want to buy or sell an energy company or raise public equity.

We think speculative "pitching" is a waste of both our time and that of the prospective client. Rather, we try to keep in regular touch to make sure we know what their specific interests are.

QHow does your staffing compare with the energy groups at the large Wall Street firms?

AMost of our competitors outnumber us in total employees, but all of our group of professionals are committed to solving energy-related issues. We have to be up in the top five in terms of energy capability.

We have a deep bench of senior bankers, all of whom have many years of energy - related investment banking experience.

We make sure that they stay close to the transaction rather than act as the salesman and then disappear.

Q
Is most of your business concentrated in Houston?
AThe highest percentage of our business is in Houston because it is the capital of the energy industry. But at any given time, we might have as much as a third of our projects outside the United States and at least a dozen projects in other areas of the country. We put "International" in our name because we serve a global industry, and in 1998, we opened our first office outside the U.S. which serves the European and Eastern Hemisphere energy service market through the establishment of our affiliate Simmons & Company International Limited in Aberdeen. In 2003, SCIL opened an institutional sales office in London and in 2006 this expanded to include trading, research and corporate finance.
QWhat are the right criteria for selecting an investment banking firm?
AThere are many different criteria that contribute to the selection of your investment banking firm. Consider the reputation of the firm and evaluate their past track record. Make sure they have defined the resources and the specific team they will be devoting to your project. Ask for an explanation of the internal system the firm employees follow to ensure project closure. What do they already know about your project as well as the other side of the transaction? Is the project important to the firm, and have they cleared any potential conflicts? They should be able to provide you with detailed knowledge about real value at project closure. The least important issue should be what the firm estimates the value will be when they are pitching for your business. Last, call around for references and ask how they performed - ask both sides of a transaction!


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