Making It on Wall Street
With working class parents and no business connections, David M. McCarthy ’86 (political science) serendipitously fell upon a summer clerkship as an undergraduate with a very small New York Stock Exchange floor broker, trading derivatives and other exotic financial instruments. “I was a disaster as a floor clerk, and almost was fired,” McCarthy recalls. “But I was determined to survive the summer, so each day I arrived earlier and earlier to clean up my prior day’s mistakes. Even though floor clerking was not for me, I became forever hooked to the world of Wall Street.”
Today McCarthy is managing director of the Birkhill Group, LLC. This New York-based merchant bank and private equity firm invests in small to mid-sized companies to generate superior returns on invested capital and increase shareholder value. The team of former principals of Wall Street firms and senior corporate executives, now led by McCarthy, provides advice, capital and management solutions related to mergers and acquisitions, restructurings, strategic alliances, joint ventures and financings. “We work closely with management teams to improve operating performance, unlock hidden value in tangible and intangible assets, increase competitive advantage and drive share values higher,” McCarthy says. “Our deal-making experience, market insight and risk management expertise are instrumental in helping companies to meet their financing requirements and achieve their strategic objectives.”
So, how does a half-baked floor clerk intern progress from then to now? “After the summer internship,” McCarthy says, “I took 100 copies of my resume and entered the most beautiful building I could find in lower Manhattan, totally determined to work on Wall Street. At the time I was more focused on where I worked, not what I did—it’s not a myth that people are more successful when they like what they do. Anyway, I snuck past the beautiful building’s lobby security, and rode the elevator, dropping off my resume on floor after floor. By chance, I ran into the vice president of a small brokerage firm who spotted me furtively sliding resumes into mailboxes. He appreciated my moxie and ended up sponsoring me for the Series 7 exam.”
Individuals who want to sell any type of securities must take this comprehensive examination. To do so requires a sponsor and intense preparation. Those who pass are eligible to register with all self-regulatory organizations to trade. “With that license and a phonebook,” says McCarthy. “I began selling my investment ideas. Most of my early business came from establishing a personal track record trading the markets and then using the performance to attract outside money.”
By the early 1990s McCarthy decided to take a plunge: he and a partner cofounded their own investment bank. The idea behind the Zanett Securities Corporation (NASD-SIPC) was to assist small-cap, “orphaned” public companies to raise capital in public markets. As an investor and as an advisor, McCarthy helped nurture over 30 public companies. Four of these emerging growth companies achieved valuations of between $500 million and $2.5 billion during the dot-com era.
In 2000, McCarthy saw the “dot-com implosion” writing on the wall and suggested that the Zanett partners take profits from the investment back and acquire a public company. “That November, we invested $10 million in a tender offer for majority stake in a chain of coffee and bagel shops listed on NASDAQ,” he says. “I came up with the concept of linking profitable boutique computer service companies into a business model named The IT Commonwealth.”
McCarthy became CEO of Zanett Inc., the IT Commonwealth (NASDAQ: ZANE). This IT services company is a “mother board” for smaller businesses whose operations are consolidated under the Zanett umbrella. By eliminating their daily operational headaches, Zanett makes it possible for them focus on their individual missions, doing what they do best. As a hands-on CEO, McCarthy led the organization from conception to $50 million in annualized revenues and an enterprise value of more than $100 million. When he left the company last year, it was poised for rapid growth, both organically and through acquisitions. “Although I no longer am CEO, I am a dedicated stockholder and am thrilled by the recent huge growth in the commercial segment of Zanett,” McCarthy says.
While appearing meteoric, McCarthy’s rise in the industry was not without some glitches. “When the stock market crashed in 1987—only a year and a half after I graduated—my employer went bankrupt. It had a disastrous domino effect on both my business and personal life. But challenges like that make success much more satisfying. You simply cannot let temporary setbacks defeat you.” McCarthy says he owes much to how his mother and father raised him. “They knew that life involves both success and defeat, and they instilled in me enough self-confidence to handle both.”
UMass Amherst, McCarthy says, gave him room to mature without constant scrutiny. “A lot of that had to do, I think, with its big-ness. I could hide amidst the hi-rises of Southwest with its many thousands of underclassmen and then reengage when a particular activity was appealing.”
That McCarthy attended UMass Amherst at all was circumstantial. “I was a high school athlete and anticipated to attend college with a baseball scholarship,” he recalls. “But during senior year my coach had a heart attack and all of his college coaching connections were lost to me. My brother, who had just spent time in Amherst at a transcendental meditation conference, suggested I take a look. I fell in love with the hi-rise architecture and the five-town collegiate atmosphere—and it was affordable. For some strange reason, UMass Amherst saw something of value in my application and accepted me.”
McCarthy lives in Manhattan with his wife Edie, a pediatrician, and his two daughters. “I work hard, and I play hard,” he says. During our off-hours we partake of Broadway, concerts, great restaurants and sporting events. I focus on both body and soul by working out with a personal trainer and attending Sunday Mass. To limit stress, I play guitar and sing on my terrace—to the enjoyment of at least some of my neighbors. I also collect vintage watches and red wines. My son from a previous marriage is poised to attend college. My daughters attend the Convent of the Sacred Heart, a private school that requires service commitments from both students and their families. My wife Edie treats infants and children, many of whom have developmental disabilities. Their struggles to make it keep me grounded and thankful for our family’s blessings.”
January 2, 2008