Midget Maker

It has always been hard for a small, growing company to float a stock issue. Wall Street's big underwriters generally ignore it; the fees are hardly worth the effort. But last week a fledgling microwave-equipment company called F X R, Inc. made news with its new issue. It had taken its modest (200,000 shares) offering to an underwriting specialist as small as itself: C. E. Unterberg, Towbin Co., a two-man firm that operates a one-room office and has won itself a red-hot reputation introducing and making markets for midgets. So successful is the firm that on the F X R issue, a string of blue-ribbon houses--Lee Higginson Corp., Kuhn, Loeb & Co., Carl M. Loeb, Rhoades & Co., Paine, Webber, Jackson & Curtis--were glad to come in on the deal, eagerly spread the stock around to their best customers. Within a week F X R went from $12 to $20 a share.

Second Stage. Unterberg, Towbin has had previous successes. In 1955 it engineered a Diners' Club stock issue that no one else wanted, brought it out at $8 a share. Current value: the equivalent of $86 a share. The two-man team handled Marquardt Aircraft Co. in 1952 at $15 a share; it is now worth $280 (counting stock dividends). While most of Unterberg, Towbin's companies are scientific or technical, it is not a venture capital firm in the sense that it sponsors new inventions. "We get in on the second stage," says Partner Clarence E. ("Dutch") Unterberg, "after the company has demonstrated some earnings. In the first stage the risks are too great." With its low overhead, Unterberg, Towbin can afford to spend time hunting for good small companies, and the partners manage very well on their underwriting profits. On Marquardt Aircraft they made $22,000; on F X R, Inc., $75,000.

Start at the Bottom. Though they have been in business 26 years, it is only in the past several years that Unterberg, Towbin has won star billing. Manhattan-born Dutch Unterberg, 57, studied banking in Europe, started a one-man, over-the-counter firm in 1932, after the brokerage firm he was with dissolved. Brooklyn-born Partner Towbin, 48, went to Johns Hopkins University and the Harvard Business School, got a job with Unterberg at $11 a week in 1933.

The firm's first "glamour" underwriting came in 1952, when Venture Capitalist Laurance Rockefeller chose it to help market the stock of his Marquardt Aircraft. Another opportunity came when Unterberg, Towbin became interested in American Research & Development Corp., a venture capital firm that had invested in a number of exciting looking companies but was having trouble getting market recognition. The partners decided to help by making a market for the stocks, acquired an inventory of shares to trade. Because there was a public market in their securities, companies such as Air borne Instruments, Machlett Laboratories and Midwestern Instruments found that they were in better positions to consider mergers and expansion plans.

Unterberg, Towbin's holdings in its own nurslings have boosted the firm's capital from a mere $20,000 to more than $2,500,000 today. But though their ventures have been almost uniformly successful, and bigger underwriters have learned how profitable it can be to sign up for one of their undertakings, the partners are a little apprehensive about the current fervor for low-priced glamour stocks. "These days," says Towbin, "anybody with a soldering iron and a piece of wire calls himself an electronics company. We find only one or maybe two really good companies a year."

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