Hurricane Sandy killed 37 New Jersey residents, including one from Princeton. On October 29, 2012, a falling tree claimed the life of 61-year-old William Sword Jr., and it nearly felled his business as well. The Princeton-based investment banking firm had been named Wm Sword & Co. for a very good reason — Bill Sword was involved in almost every aspect of the business.
What remained after his death: a widow, Martha Sword, who knew little about the business but who was suddenly the CEO; the oldest of three children, Gretchen Sword, who at 29 thought she knew lots about the business and planned to learn more; and another potential successor, Daniel Rowe, who had been like a son to Bill Sword but who had no financial or family claim to the business.
“A lot of crows were circling,” Gretchen Sword says. There was a cash flow problem. “The firm owed Dad more money than was in the bank account,” she says. There was also a regulatory problem: with the CEO gone, no one owned the proper license. But to dissolve the firm would yield cents on the dollar because the assets were based on deals that brought in income over time.
Gretchen Sword was caught up in the throes of grief. Rowe was also grieving, and the daughter and de facto son clashed. “Dan had a new vision of where he wanted to take the company,” Sword says. “I didn’t know what I wanted, but I wanted my father back.” She tried to block the plans that Rowe proposed.
One year later, the firm launched under a new name, Sword, Rowe & Company, a boutique merchant bank focused on offering financial advisory services for private companies and alternative investment managers. Colocated with Rosemark Capital at 90 Nassau Street, it has eight full-time and two part-time employees, plus 15 senior advisors, investors, and affiliates.
Daniel Rowe is CEO and managing director, supported wholeheartedly by the Sword family, notably Gretchen Sword. How this happened is a story of knowledge, power, wealth, connections — and people with good hearts.
When William Sword Jr. died, he was already a legend in his hometown. His Swedish immigrant grandparents had established a tradition of public service in the coal country of Pennsylvania. His father, William Sword Sr., was a scholarship student at Princeton University, Class of 1946, who had served in World War II. Sword Sr. made his mark on Wall Street, pioneering in mergers and acquisitions to start that department at Morgan Stanley. He left in 1976 to start Wm Sword & Co. at 34 Chambers Street.
Sword Jr. grew up with money but did not flaunt it. He was known for the quiet generosity that enhanced many Princeton area charities, including Centurion Ministries, Habitat for Humanity, and Nassau Presbyterian Church. He graduated from Lawrenceville School in 1969 and enrolled at Princeton University in the Class of 1974.
Fascinated by the politically charged atmosphere of that time, he interrupted his studies and went to Washington to work for the redoubtable Congresswoman Millicent Fenwick, a progressive Republican known for her support of the women’s rights movement. He returned to the university to major in politics and joined his father’s firm after graduating in 1976. Within five years Sword Sr. retired to work for various civic organizations, and Sword Jr. assumed total responsibility.
Bill Sword Jr. had made headlines for his near-death experience in 2003 when, in the middle of the night, a deranged man crashed his car on the Great Road and sought entrance to the Swords’ home. Once inside, the man stabbed Sword multiple times with a kitchen knife. Sword suffered a punctured lung. The intruder was fatally shot by police.
Having come so close to losing his life, Sword was more prepared for death than most. In his wallet he carried the Bible verses and hymns he wanted at his funeral. And he had created a document specifying that, if he died, he wanted his wife to be CEO of the firm his father had founded.
This was a perplexing turn of events given Martha’s inexperience in the business and the nature of investment banking. An investment bank is not a shoe store or a factory or any other kind of firm for which a manager can be easily be hired. Its income depends partly on past transactions — cash flow from past fundraising projects that payout on an ongoing basis. It also arranges eight-figure deals for companies that need money to grow.
Martha Sword, an alumna of Bowdoin College, had watched deals happen and supported her husband through the ups and downs of the business, but mostly she had devoted herself to raising her children, to helping various causes, and to ice skating. The daughter of a Canadian tennis champion and figure skater, she had trained to be a world-class figure skater.
She was ill equipped to take over the business, but her husband had trusted she would have the good sense to find good help. And she knew enough not to sell it. “Immediately there were poachers looking to take over the firm,” Gretchen Sword recalls. “Now I realize that it would have been easy enough for him to sell the assets when there was a rough month. In a 37-year career, there were a lot of ups and downs. I am sure there were many times he could have given up. For us to get through the first year was pretty amazing.”
Everyone in the family put their cards on the table. The middle child, Hope, works in Los Angeles for a music management company and said she has no interest in the business. The youngest child, Will, could eventually follow in his father’s footsteps, but he is still a student at Colorado College, set to graduate next year. As the oldest, Gretchen Sword thought she was on the line to save the legacy of the firm: “I worked with my dad for a bunch of years in the office and in New York doing business development, and on a few deals with him as well,” she says.
A neighbor, Cindy Linville, stepped forward to help. “She had worked as an investment banker for 15 years before she became a full-time mom, and she began a scavenger hunt for all the accounts and passwords,” Gretchen Sword says.
The family assembled an advisory board. Eager to help, five family friends joined the board by late November. They included two of Sword’s Princeton roommates — John N. Irwin and Mark Larsen. Irwin, the grandson of IBM’s Thomas J. Watson Jr., has an investment firm in Greenwich, Connecticut, and he helped mentor Rowe. Larsen had just retired as president of a major division of Wyeth Ayerst and had time to devote.
The advisory group also included Lee Gladden, an alumnus of Commodities Corporation, who for many years had worked in the same office space with Sword and remembered how some of the deals went through. His newly launched firm, Witherspoon Asset Management, is at 15 Chambers Street now. Chris Kuenne, who sold Rosetta and recently founded Rosemark Capital, helped with marketing and business development (U.S. 1, October 16). Charles S. Crow III, an attorney who focuses on securities and commodities law, was the legal counsel.
“Mom, with fortitude of mind and vision, chaired monthly meetings,” Gretchen Sword says. “We realized that if we really listened, my dad was with us. All the people who should be involved were right around us.”
Gradually Gretchen Sword accustomed herself to the idea that she did not want to “become” her father. At first she wanted to go to business school and take a leadership position. The turning point came when she realized she didn’t really want to be an investment banker after all. “It is not my passion, and it became obvious to me that Dan was the right person. My background is advertising, marketing, and sales. Slowly but surely I have come to learn what I don’t know.”
She and the board also came to accept Rowe’s innovative ideas. To the traditional activities of an investment bank, Rowe wanted to add merchant banking. Meeting monthly and with phone calls throughout the month, “we got a lot closer to what Dan wanted to do, and closer to what would honor Dad’s legacy,” says Gretchen.
Still, when one person had been doing everything for so long, how to pick up the pieces? Urgently, someone needed to get the necessary licenses, issued by Financial Industry Regulatory Authority. Regulators can shut down a company that doesn’t have a FINRA-licensed executive. Rowe — who had just come back from paternity leave for the birth of his third child — crammed to take that licensing exam. He passed the two-day exam soon after Sword died.
The cash flow dilemma could be solved because Bill Sword had kept good records of what he put back in the firm.
Perhaps the knottiest problem was how to value a firm where future cash flows are uncertain and contingent on the business surviving as a going concern. “One of the reasons why we didn’t wind down the firm is that it makes money based on deals negotiated into perpetuity. We would be walking away from the money Dad was earning,” Gretchen Sword says.
Wm Sword & Co. had these assets:
The broker-dealer licenses, held by Sword, now held by Daniel Rowe and another of the three managing directors.
The intellectual property. For an investment banker, contacts are everything. “My father had 15,000 contacts diligently organized and categorized by his former secretary, who programmed a legacy software called Paradox,” Gretchen Rowe says. “Every meeting was filed, and we are scavenger hunting who were the most important people and which deals they were involved in, so we can understand all the work he did.”
The name: It is well known on Wall Street because of Gretchen Sword’s grandfather, who had turned over the firm to his son in 1981 but lived two decades more, dying at age 80. To form Sword Rowe & Co., everyone had to agree on a dollar value for the firm, a number that has not been disclosed. However it is public knowledge that Martha Sword had a majority share at 76 percent. Gretchen’s grandmother owned 15 percent, and her father’s siblings each owned three percent.
The monies to run the company, the capital for paying salaries and rent, came from investors. Scott Sipprelle, former managing director at Morgan Stanley and former Republican candidate for congress, was the lead investor and is one of five directors. Kuenne and Jordan Gray, founder of health benefits brokering firms, are director/investors, as are Martha Sword and Rowe. The firm lists a half-dozen other investors, plus some affiliates. These investors will have the opportunity to put capital into future deals.
Kuenne offered to house the firm in the space he leases for Rosemark Capital at 90 Nassau Street. It’s a prime location but with low-key decor. That’s in keeping with Bill Sword’s notable dislike for expensive trappings. In 2002 he trimmed costs, reducing staff to a minimum, relying on part-timers and consultants when needed. He moved out of the first floor at 34 Chambers Street, keeping only the second floor.
Rowe is CEO and one of the three managing directors. The others are Steve Plimpton and Edward Bralower. Plimpton (Harvard, Class of 1997) helped build a $1.5 billion fund at Equinox Fund Management on Hulfish Street. Bralower, who lives in Connecticut, is a 1982 graduate of Franklin & Marshall and had 25 years with Jefferies & Co.
Standard fare for Wm Sword & Co., and for most investment banks, are merger and acquisition deals — selling an established niche company to an established niche buyer. The Swords focused on two major areas, healthcare and media.
Aton Pharmaceutical is an example. Ushering Aton into the world would have been too specialized a deal for the big guys on Wall Street. As described in U.S. 1 (May 9, 2007), Aton was based at Princeton Crossroads Corporate Center and was formed to focus on a handful of products that were going unnoticed by Merck. They include a now much-advertised product for “dry eye,” Lacrisert.
The Sword firm provided guidance on Aton’s company business plan and financing strategy options. It advised Aton during the acquisition negotiations with Merck & Co. and in raising the capital required for the acquisition from private equity firms, a daunting task during the recession. Soon Aton “significantly outperformed its original business plan” according to Rowe, and in 2010 it was sold for $318 million, producing a nice profit for the investors. Its new owner, Valeant, moved it to Bridgewater.
A second function of the firm: raising capital for alternative asset money managers and private equity funds. For example, it ran a venture investment program for Capital Cities Capital (C3), a subsidiary of Capital Cities / ABC Inc. It assisted Cap Cities in developing an investment strategy and in executing and negotiating numerous transactions. “The mission of Capital Cities was to earn venture capital returns by helping finance growth companies that needed advertising,” says Rowe. The portfolio did well, and Capital Cities/ABC Inc. was bought by Walt Disney in 1996.
Gretchen Sword is listed as a “board observer” and limits her function to writing press releases. “I do public relations to honor my father’s legacy. I adore Dan, and I want the firm to be successful,” she says. “Our names are on the door together.”
How Gretchen Sword got from here to there, from wanting power to ceding power, is due to a Eureka moment. After her father died, she admits, she spent the next few months in a total haze. “I couldn’t see the woods for the trees. I was the most contentious person, for sure,” she says. A public policy and economics major at Hobart and William Smith College, she had spent a decade working for big corporations like Bloomberg, Forbes, and Atlantic in jobs that involved new media. In addition, she consulted part time for her father in new media deals.
She was also teaching Vinyasa yoga. Her website shows her doing headstands in beautiful places all over the world. Yoga is a part-time sideline, however, and for her day job — suddenly — she wanted to turn the page, to get away from corporate life and go off on her own. “Just a few months ago, I asked myself, ‘what do I really want to be doing? Life is never as long as you want it to be. Why not spend every day doing something you really love?”
She envisioned a start-up based on what her father always encouraged her to do, to monetize her trend-spotting ability. A trend she sees: the disruption of traditional advertising. Based on changing consumption habits, she thinks companies should market and advertise their products and services in profoundly different ways.
“I think I’m uniquely positioned — based on my work with big corporations, where I’m very proud to have worked — to help brands find new audiences. Maybe that’s through online video. Maybe it’s through new social networks. Maybe it’s through applications or communities on connected devices. I’m interested in helping them figure that out.”
She launched a co-investment firm, based in the Soho neighborhood of Manhattan, to work with small new media start-ups. She looks for companies that can cut through the glut of information news by using mobile, video, social networking, local news. “These are the businesses I really know.” She will leverage her strength in short-term management: “I’m good at getting something set up and running — to helicopter in and parachute out — and be on my way.”
The seven companies in her portfolio are in different stages of growth. “I own equity in each one, and I help them fundraise, sit on the different teams, get the CEOs to do what they are ready to be doing. Often entrepreneurs are very good at what they do, but when it is ready to launch the business, or to market the app or website, they don’t have that part of the business figured out.”
Of course she wishes that her father could still be her mentor, but she believes that what her father taught her, and what he stood for, is guiding her every step of the way. Her company name, Adipose, derives from her father’s pen name, the term for the “steering fin” on a fish, the adipose fin. “I had this totally lucid day, when I brainstormed these ideas, and I realized his pen name could be the company name. I am directing companies to a new way for them to speak to their clients.”
“He gave me all the tools. I realize that what he would say is inside of me. I have to stop looking for it and just check in with myself. He told me everything I need to know already. It has taken me a year to really listen. But if I really listen, I just need to act on it. I love waking up every morning now, as opposed to waking up in my grief and sadness.
“Even up until the weekend he died, he was doing the things he really loved. We cleaned up the gutters, in preparation for the storm, and he went to church. He loved going to church. Why would I spend even one day not doing what I love? He did exactly what he loved — first his family and second his work and all the things that have to do with his work. If I think about it that way, I am finally honoring his legacy, finally doing it.”
Sword, Rowe & Co., 90 Nassau Street, Fifth Floor, Princeton 08542; 609-924-6710; fax, 609-924-3890. Daniel B. Rowe, managing director. www.swordrowe.com.