Finally! After a quiet few months, things are picking up...

A sports training roll-up with more than 50 products and national distribution through major retailers is seeking a CEO to guide the company to become a major player in the industry. Though under $100 million in revenue, the firm has a solid reputation and an emerging presence at the highest levels of sports retail.

A firm that is creating currency and a trading platform for rewards and loyalty points across major brands is seeking equity capital. He company has a technological platform to consolidate and rationalize loyalty program points for consumers so hat they can effectively be used as an alternative form of currency.

A seasoned Newport Beach entrepreneur is seeking to establish the next major American beer brand, and is off to a good start. The company contracts with very well-known celebrities to use their images on its bottling in localized regions. The company has a distribution agreement with a major grocer and is expanding from its Orange County roots to begin brewing in a major Southeastern plant. The company is looking for debt or equity capital, primarily for marketing activities.

A team consisting of a Northern Californian and a group of San Diegans has the exclusive right of negotiation to buy a major league sports franchise until mid-December. The team's leader has already been blessed by the league as an approved owner, and the group has the ability to structure one of several deals that cold include stadium rights and real estate.

A technical entrepreneur is looking for funding for a device for early detection of breast cancer that would be inexpensive enough to be purchased and used by consumers.

An advertising video company in San Diego is looking for proof-of-concept funding. The firm produces news-quality videos featuring commercial enterprises demonstrating their expertise in certain areas, and then packaging and marketing the videos through social media. The firm is pre-revenue but is operational.

An apparel company with a strong management team and a focus on the power sports apparel market is looking for seed funding. The firm features executives of stong surf and action sports apparel brands, with top-tier marketing, sourcing and merchandising expertise.

A former family office executive and an investment banker are looking for a partner to facilitate a roll-up of well-established apparel surf brands.


Slow month....


A destination winery in the Temecula area is for sale through a San Diego-based investment bank. The winery features 28 wines, five-star dining and a large event facility.

One of the co-founders of one of San Diego’s most interesting craft beer brands, Lost Abbey, is launching a new label and brewery, to be called Latitude 33. A very limited investment opportunity is available.

A longtime NFL player and his business partner have launched a networking/peer group for professional athletes to meet and work with business owners and professionals in the Southern California market.

Busy month...be sure to check previous posts

FOR SALE:  Highly profitable data aggregation company that dominates its space. Expected to sell in the $15 million to $20 million range.

LOOKING FOR MONEY: Loudie is a location-based network that allows music fans to communicate about their favorite artists and concerts, while incentivizing them to attend more concerts and share their experiences. It allows artists and music companies to
directly market their products and services to music fans in real-time with no outside interruptions. $500,000.  Review: http://soletron.com/2011/07/22/loudie-iphone-app-video/

REDUX: One of the founders of a one of San Diego’s leading craft brewers is spinning off to do another brewery and brand line, and is looking for investors interested in the space. The principal is a CPA with a strong financial background, and the brand line has an affinity angle.

A for-profit educational company is seeking a proven CEO who can thrive in what has become a very challenging environment for the industry.


More News and Networking

RESTAURANT OPPORTUNITY: One of Southern California’s recognizable names in the ‘fast-casual’ dining space is looking for $2 million to fund a pre-packagd turnaround under experienced restaurant leadership.

SOLD!!  An OC-based firm in the electronic payments space has been sold to an Israel-based firm for $19 million, closing in July.


BOARD OF ADVISORS A company in the social gaming space is looking for an marketing executive and a finance executive with experience in the gaming/interactive industy for their LA-based advisory board.


News and Networking

  • HELP WANTED: A private equity firm has identified a deal in the action sports apparel space, and is currently searching for a management team…or at least a CEO who can assemble one.


  • SOLD!  A Southern California-medical device company founded by physicians has been sold for more than $75 million. He deal comes about 8 months after a prior deal to sell the firm for more than $100 million fell through.

  • SOLD II! A specialized family-owned chemical company in the region has been sold for more than $50 million.

  • LAWYERS NEED APPLY:  A mid-sized but highly regarded law firm with offices in Los Angeles and Orange County is seeking a trust and estate planning associate with two to five years of experience to help ease the enormous workload being shared by the firm’s T&E partners. No book of business is required or expected.

  • ON THE HUNT I: A wealth management firm in Southern California is looking to acquire an asset manager in the San Diego market with an excellent reputation and at least $500 million under management.

  • ON THE HUNT II: A mid-sized accounting firm in Orange County is looking to acquire sole proprietor and small CPA practices.

  • LOOKING FOR A TARGET One of the executives and founder of a recreational vehicle company in the Inland Empire is looking to buy a manufacturing company, preferably one in which the business owner is retiring and is looking for a long-term payout from an experienced management team.

  • FOUND: One of the executives previously highlighted in this blog has found a target, becoming a partner in a Dallas-based automotive retailer. He is still in the hunt for a beverage-related company in Southern California.

  • HELP WANTED: One of Southern California’s leading distributors is looking for a CFO who can handle both expansion and sudden contraction. Company now has about $400 million in revenue, and is facing some critical growth issues.

  • CAPITAL RAISE:  A medical marketing company with great traction is searching for expansion capital. The firm uses social media for lead generation for local medical providers.

  • CAPITAL RAISE II:  A firm that pays people to text – while serving targeted ads to texters and text receivers – is looking to raise $2 million for expansion and the development of strategic partnerships.


  • HELP WANTED: One of the top law firms in Southern California is launching a private family practice focused on the ultra-wealthy. Starting off with a team of ACTEC attorneys and three billionaire family clients, the firm to actively trying to recruit a top-tier international estate planning partner-level attorney. The firm currently has offices in the UK and China, as well as several in the US, and does extensive work in Latin America.



Networking and News


GREAT NETWORKING NEXT WEDNESDAY NEAR SNA

Wednesday, May 4 at 8 am at The Pacific Club – More than 200 professionals are expected to hear Dick Hoey, BNY Mellon’s lead global economist, give his prognosis for the next months and year. No charge, but RSVPs are required to paul.thiel@bnymellon.com.


Moving TO California!

For all the anti-hype there is about the business climate in California, the state remains attractive for business. Case in point: A major manufacturer of audio equipment is moving its headquarters from the East Coast to San Diego. The company is expected to employ about 65 professionals, including executives and engineers. Selected for its labor force, San Diego beat out Austin TX, Las Vegas, NV and several other sunbelt cities. The company is currently looking to fill several positions, including CFO and controller.

On the way UP!

The Institute for Nonprofit Education and Research at the University of San Diego reports that next year’s entering class of masters’ canidates will include students from Chile and Argentina. Part of the University of San Diego, the Institute acceptance rate was 40%, and one student who was turned down by USD was accepted and is expected to enroll at Columbia.

Filling the Gap

Vistage is for operating executives. Tiger21 is for those who’ve cashed out and made $20MM or more. Now a former Vistage executive is starting a program to serve those business owners who want to sell their businesses in the next 2-5 years. Like Vistage, the groups will meet for a full day each month and have 1-on-1 coaching in between, all focused on building value that future buyers will pay for.  The group is currently taking business owners in San Diego and Orange Counties.

April 2011

Know a corporate law partner who feels underappreciated in at his or her current firm? Give them a tip – one of Southern California’s leading law firms is looking for a lead corporate partner for one of its most dynamic offices.

Would you be a greener shopper if you just knew what or who was green? A new San Diego-based company is betting you will. Looking to raise a friends and family round of about $600,000, this firm has a persistent online opt-in tool that helps consumers put their apparel dollars at environmentally conscious companies. The firm has a working product that operates dynamically at the product level, steering consumers away from, say, The Gap, to, say Patagonia.

Texting runs $30 a month or more. Think there’s a market for someone to pay you to text instead? A new ad-supported service from a San Diego company offers not only free texting, but shares advertising revenue with subscribers.

Leave a legacy: For a mere $5 million – terms can be negotiated – you can name the Institute for Nonprofit Education and Research at the University of San Diego. The nationally acclaimed program is offering donors a one-in-a-lifetime opportunity to name an organization that is rapidly growing in prominence and prestige.

A $30 million online and offline specialty retailer is considering a product line extension and partial recapitalization to allow the founder to take some chips off the table. This highly regarded retailer, which is so powerful in its space that it has 180 terms with full return privileges from its suppliers, is talking to private equity firms as well as others.

A $3 million company in the cosmetic space is looking for a partner and/or product endorser to help it expand across product categories and help it growth. The company has IP formulas for its products.

An agent for top-tier Major League Baseball players is looking for local and regional endorsement opportunities in Southern California, Arizona and Florida.

A buyer is looking to buy a restaurant chain with at least $50 million in revenue, $5 million in EBITDA and multiple locations.


Still active (see previous posts):

  • Credit card receivables...$1 million investment minimum.
  • UK investor looking to spend $20 million + to acquire brand with big potential
  • 9% or 11% returns for investors in private mutual fund buying full recourse receivables
  • Parcels available at desert race track 










February 28


What if 88% of your best prospects suddenly had no need for your services?

That's what has happened to the trust and estate attorneys focused on advanced planning for the affluent. The new estate and gift tax law reduced the number of people subject to the estate tax from 2.8 million people to just 340,000, according to BNY Mellon.

Of course, there are other reasons besides estate tax minimization to do estate planning - family issues, business succession, asset protection etc. -- but tax minimization does drive the most lucrative parts of the business. And with headlines driving home the fact that estates of less than $5 million/$10 million won't be subject to estate taxes, potential clients in that segment are being driven out of the market.

We are interested in hearing about how practioners are dealing with the sudden contraction of a market that has allowed hundreds of trust and estate attorneys a very nice living.

Things may not change much for those at the upper end -- with the bulk of their work focused on estates with more than $10 million to $12 million or so. They still need advanced planning.

We've already heard of life insurance practioners moving more into the securities and investment business to make up for what they believe will be a marked decrease in large policies designed to pay estate taxes. What is the strategy for you attorneys out there?

______________________


People with money -- a Southern California-based representative of a European family has access to up to $50 million to buy a business. The family prefers to buy 100% of the company, though it might entertain majority position. Preferred industries are in food and beverage, and an ideal acquisition would be a manufacturing company that has a product or series of products with a strong regional brand that can bebuilt into a national or global brand.

__________________

The M&A market is still quiet, at least at the mid market level. Practioners in the space say that a flurry of activity at the end of 2010 sucked activity out of early 2011, but that the second quarter is looking promising. Credit markets are easing somewhat among middle market banks,  which may give companies the means to grow to get back at least part of the valuation they lost over the last couple of years.


Happy New Year!

Welcome to the first posting of 2011! 


Before we begin, click on the picture below for details on an unusual CE event on January 27 -- the wine, jewelry and fine art expert from Chartis Insurance is visiting Orange County for a client event at Bacchus Wine Cellar in Irvine on January 26. She is staying through the next morning when she will deliver a CE seminar. For details, click on the PDF below and RSVP to Sadie Bailey at Sullivan Curtis Monroe.


Now on to our regularly schedule programming....


2010 was a slow year for M&A and capital raising activity, but there was some activity. Some of it resulted in deal consummation, some in frustration. As we head into what is widely expected to be a more active year – how could it not be? – I wanted to start with a few stories from last year, courtesy of some of my favorite attorneys. Here are a couple to start, and you can expect more in the next couple of weeks – so stay tuned!

Snell & Wilmer’s Jim Scheinkman represented Intri-Plex Technologies, a data storage component manufacturer that was sold to KKR-backed MMI Precision Technologies. The Santa Barbara-based company makes miniaturized components for storage, and claims to have contributed components for 40% of the hard drives in the world.


Jay Thompson of Freeman Freeman and Smiley had a rush job on the sale of a solar panel manufacturer to a financial buyer. The client and the buyer wanted to close the deal within four weeks because both parties were concerned that any delay could allow competitors to enter the market and reduce the value of the transaction. The deal -- cash with an earn-out -- closed on time in Q3.


Jay and FF&S also represented the majority shareholder of an escrow company in the sale of his share to key employees. Also a Q3 deal, the deal closed for cash and a note after intense negotiations of the value of the enterprise -- a challenging task given the poor state of the real estate market but the high performance of the company.





Meanwhile, other deals were tabled late in the process as nervous buyers started looking for extraordinary bargains in an uncertain market. Best, Best & Krieger’s George Reyes lived that dream twice. A medical-related company was asked to take a $15 million haircut on a $100 million deal by the would-be acquirer, a private equity company. No, thanks, said the target. Later in the year, internal politics driven by the buyer’s nervousness caused another deal with the same target to collapse.

Meanwhile, there is some activity now:

A group of San Diego investors has an LOI to acquire one of the premier hotel/residential properties in all Southern California. The deal side is in the $55 million range, and the group is currently finalizing some of the long-term capital. The group will take investors with a minimum participation of $5 million. 


New stuff

A hotel fund is being established by a San Diego-based group to acquire and run distressed properties -- or, rather, good properties from distressed sellers. $200 million target. Group includes veteran hospitality turnaround specialist.


Digital company in the legal space needs a direct/social marketer. Manager-level, $60k-$70k salary. Growing company, backed by venture funds.


Medical-related company has agreed to be acquired by a strategic buyer for $105 million, cash. Eight months in process, expected to close within 45 days. 


Big company executives have raised $750k and are raising another $1.25 million for an online debt settlement service aimed at consumers. Debtors would use a "Priceline"-inspired model to negotiate a settlement for credit card and other consumer debt.


Leading regional public relation agency with concentrations on food service and hospitality is looking for an account supervisor.


Regional CPA firm in Orange County is looking to acquire small practices from owner-operators.



Paso Robles-based winery specializing in small lots of Rhone-style wine is seeking $500,000 for expansion. Priority return of 8% annually.


PREVIOUSLY (scroll down to see details):


- New energy drink to be launched
- Mass-market wine label from successful vintner/marketer combination
- Golf fashion icon launching new line of clothes






Interesting perspective on taxes and economic policy:


This is a response to the small business tax section of "FactChecking ‘The Pledge’" [Sept. 24].
Either I am being really stupid, or a major point regarding small business taxes is being missed. The point is that small business EXPENSES are NOT TAXED. Only the income is taxed. Much has been made in publicity about the pledge about how this tax on small businesses will hurt small business investment. Not so — because that investment is deducted from earnings during the calculation of income. In fact, since small business owners now face a situation where they face higher taxes on income, they may choose to invest in the business (higher business expenses) rather than pay the money as taxes. Thus, higher taxes may actually INCREASE small business spending.
All of this ignores the myriad ways small business owners — particularly agricultural business owners — have to shift expenses between business and personal. Yes, wealthy small business owners will pay more in taxes on the profits from the business. They will pay more on the money that is NOT RE-INVESTED in the business. This tax won’t hurt the ability to invest in the business.
I can’t tell you how many times I have looked at my estimated taxes in mid-December and my business income and expenses and decided to make a major business investment before the end of the year rather than pay that same amount in additional income taxes. I cannot tell you how many other small business owners have told me about doing the same thing.
I really think the way this has been presented is misleading and disingenuous. I’m very disappointed in the press for quoting the spin verbatim instead of thinking about this for thirty seconds. Your fact-check is far better than most press reports about the pledge, but it completely missed the point that it is profits, not earnings, that are being taxed.
The other point being missed is that people taking more than $250K/year out of a business are still high-income taxpayers and the fact they earn that money through self-employment and business ownership doesn’t (shouldn’t) make them special and exempt from taxes. Most of that money is essentially taken out of the business! The whole spin is blatantly false and it just makes my skin crawl.
Kim Upper
Huntsville, Ala.

On the Prowl and Two "Must-Reads"

A highly respected regional accounting firm in Southern California is looking to acquire a 30-person firm in the region. The firm, focused largely on manufacturing and distribution clients, seeks to broaden its base of business.




Don't Miss These:


#1  The WSJ on how some financial advisory firms are helping clients protect against another "black swan," which we will politely refer to as the 100-year-flood that has been happening once a decade. Click here:
WSJ BLACK SWAN or copy and past the link below.



http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748703791804575439562361453200.html


#2  Despite recent trends, retail investors still pulling out of equities. Click here: NYTIMES EQUITY OUTFLOW
or cut and past this:

http://www.nytimes.com/2010/08/22/business/22invest.html?_r=1&ref=busin



There's a lesson in psychology in there somewhere...



LOOKING TO BUY...HELP WANTED...DEALS...3Q ECON OUTLOOK



On the hunt

An undisclosed publicly traded firm is looking to buy a wealth management firm or asset manager with assets under management between $500 million and $1 billion. The firm should be expert at managing assets, and be looking for relief of client servicing and prospect solicitation.



Economic Soft Patch Causes Equity Market Correction - CitizensTrust

In our second quarter 2010 commentary, we discussed our opinion of “cautious optimism” for the U.S. equity markets given a business-led smokestack recovery and strong signs provided by leading economic indicators both in the U.S. and abroad. We also suggested that the equity markets after almost an 80% run from the March 2009 U.S. market bottom were overbought and, in the shorter-term, were due for a correction.

Indeed, we got the correction as expected with about a 15 1⁄2 % downdraft from the peak of the S&P 500 in late April. The problem for most investors (including professionals) is that these corrections tend to feel long and extremely painful especially if you are looking at your portfolio on a daily, weekly or even monthly basis. These are the times when investment counselors refocus clients on their accepted risk profiles and see if they have changed and also refocus clients on their original goals’ which are hopefully based on more than a month or quarter’s returns. At CitizensTrust, we focus on the business cycle and its four phases - decline, trough, expansion and peak.

No matter what phase the cycle is in, it rarely moves in a straight line. There are deviations and volatility along the way and also potential issues that could derail an investment thesis which have to be constantly evaluated. Our focus continues to rely on leading indicators. We still believe that the U.S. and global economies are in the expansion phase of a business up-cycle that began in June of 2009. In earlier commentaries, we have indicated “cautious optimism” concerning the expansion phase which typically lasts about five years. We also indicated that we believed that we were in a cyclical bull run within a longer-term secular bear market. We hoped that the run would be similar to that experienced from 2003 to early 2008 (another expansion phase).

The alternative would be a jagged roller coaster ride of up and down moves which are typically difficult periods for investors.

On the negative side, we saw a distinct softening of leading economic indicators in the second quarter that included a recent decline in weekly U.S. leading indicators, average jobless claims now stuck between 450,000 and 475,000, and a sudden rise in bond spreads (corporate bond, 2 year swap, Libor-OIS); which together indicated a slower rate of growth for the U.S. economy than we saw last quarter when these indicators were all moving in a positive direction.

Given the slowdown from higher growth levels domestically which is especially affecting the U.S. consumer as seen with a weakening in retail sales, the next questions are whether there is evidence of a global slowdown and, if so, does this portend of a “double dip” recession where we revisit the lows of the markets back in late 2008 and early 2009.

The short answers to these questions are there has been evidence of a slowing of growth internationally but not of the magnitude to make us believe this is a prelude to negative growth rates in GDP or a “double dip”. Rather, it looks like a “soft patch” which is a period of slower growth within the longer-term expansion phase of the business cycle. In an expansion phase, growth and recovery rarely occur in a straight line. International evidence included a slowdown of growth in Europe as a result of austerity measures and fundamentally weak economies in Southern Europe. In addition, growth in China slowed as a result of self-imposed limits on construction and business lending meant to slow property speculation and growing signs of inflation. For example, Shanghai new home sales were down 57% in the first half of 2010 and Chinese vehicle sales were down 18% from their 2009 peak this June. Finally, the Baltic Dry Index (a measure of non-oil related global trading) has declined markedly of late, signaling a slowdown in the shipment of goods between countries.

Soft Patch, Not a Double Dip

Although there has been a definite slowdown, we do not believe that the global economy is headed for negative growth - a double dip recession. This extreme view has been postulated by many pundits based on the negative news reported above. Nevertheless, there is also a spate of positive items which suggest the global economy truly bottomed in June 2009 with no revisit of the crisis of 2008 and early 2009. First, manufacturing activity has remained strong as seen with impressive new orders for manufacturing equipment. This indicates that our thesis on a business-led smokestack recovery is still intact.

In addition, the IMF lifted their forecast of global growth to 4.6% from 3.9% predicted in January based primarily on strength in emerging markets with a focus on China, India and Brazil. While Southern Europe remains weak and implementing their own austerity measures to control government debt in the face of weak GDP, major European economies such as Germany and France are faring much better. Also on the positive note, Timothy Geithner, President Obama’s Treasury Secretary, indicated that the maximum federal capital gains tax rate next year would be 20% (up from 15% but well below the 40% or so feared by the markets). He also recently indicated a similar small rise for taxes on dividends’ which is again smaller than many feared.

The Chinese slowdown (from 11.9% GDP growth in the first quarter of 2010 to 10.3% in the second quarter) portends a “soft landing”. The Chinese sought to control growth which was bringing about signs of unacceptable levels of inflation in both real property and commodity prices. Of note, the country can rapidly reignite growth if it is deemed to have slowed too much through policy (reducing or eliminating restrictions) if necessary. In addition, world money supply remains high, the yield curve is still steep, and inflation is not an issue with U.S. capacity utilization at 74%, well below the 80% average.

Although U.S. GDP growth will likely slow from the 3% plus rate expected at the start of 2010, it should remain positive. This means a “recovery” albeit not as robust as previously anticipated earlier this year. In the U.S., the markets are focused on both the creation of jobs domestically and the stabilization and recovery of the domestic housing market.

With only about 593,000 private payroll jobs created so far in 2010 (after a loss of 8.4 million jobs since the slowdown began in 2007) and the unemployment rate now averaging 9.5% due to a drop-off in those seeking employment, the job scene has weakened. At this point, job creation does not appear that it will become robust absent additional stimulus through growth initiatives. A rise in U.S. factory capacity utilization to the 80% plus level from 74% currently would ignite job growth given robust productivity numbers that likely cannot be extended much further. Sales of existing homes were down 30% month- over-month post the end of government stimulus. We believe that supply and demand for existing homes which stands at 8.3 months nationally has to normalize to the 5-6 month level and must include “shadow inventory”. This likely means a bottom sometime next year or in 2012.

The bottom-line is that we remain cautiously optimistic with a bit more emphasis on the “caution” side given anticipated slower growth from the U.S. and increasing reliance on emerging markets to take up the slack. We will continue to focus on those indicators providing a view on what is going to happen rather than those depicting the present or past and will make adjustments to allocations and holdings accordingly.

Like equities, the fixed income markets remain volatile as well. So far this year, U.S. Treasuries have continued to surprise, as investors flee European sovereign debt, anything energy - related and many financial names. Yield spreads began to widen in late April, and then more or less hit a plateau in June. It would appear those who had predicted the bond market’s demise may have been wrong - or just incredibly early.

We continue a fairly conservative approach, but we have loosened up a bit to take advantage of a still- steep yield curve. Of late, we have used more of a “barbell” approach to bond portfolios - buying bonds at the shorter and longer ends of our yield-curve comfort zone. The barbell approach tends to outperform during flattener environments and sometimes during parallel yield-curve shifts. We attempt to keep durations in the 3-year range for taxable accounts, and slightly longer for tax-free portfolios.

For taxable clients, we continue to favor California municipal bonds. On the bright side, the state’s cash-management techniques may have bought it a few months’ leeway, while state tax revenues have trended upward this year, though not in a straight line. At the end of the day - and possibly toward the end of the summer - we expect California to strike a new budget, meet its obligations and at least maintain its current debt ratings. Individual municipalities may not emerge so fortunately, however, as they see less local revenue and fewer dollars coming from Sacramento. In May, for instance, the state grabbed $1.7 billion in redevelopment funds from local entities, putting more pressure on municipal and county governments. Thus, CitizensTrust continues to scrutinize our portfolio holdings to insure capital preservation.



Hiring!

A regional accounting firm with a trust and estates practice is looking for a CPA with T&E experience, as well as a early-to-midcareer CPA for a tax slot.

A non-profit organization that enlists HNW former business owners to help other NFPs is looking for a membership directors.




Looking for Capital!


Not being the best time to look for start-up capital, several deals seen here over the past few months are still active. Scroll for details, but here are the headlines:


•    Potentially game-changing ENERGY drink, run by former executive of one of the world's most well-known beverage companies
•    Golf and leisure-wear apparel, run by one of the truly iconic members of the sports fashion establishment
•    Beverage distributor with multiple 2nd-tier brands and exclusive distribution arrangements
•    New mass-market high-quality wine, run by highly experienced wine maker / distribution team 


Jobs and Deals



Very stable and profitable mid-sized bank is looking for a business development-oriented relationship manager. Lots of potential in an underserved market. 


Prominent hedge fund of funds manager is seeking a general counsel.  The ideal candidate will have at least 10-15 years industry experience and currently be a deputy GC or GC at an alternative asset manager or hedge fund of funds.  

Former soft drink and distribution executive has backing of up to $20 million to buy or invest in food-related distribution or manufacturing companies in Southern California.

Prominent but small media company in outside of Los Angeles is looking for a partner to recapitalize or a buyer for the firm. Company has several brands in niche markets and has an interactive presence. 

Growing healthcare-related company is looking for three sales executives -- one entry level -- to sell services to middle-market companies. Salary plus commissions. 


Don't Miss This! - Buffet's important/intriguing points

Today we take a break from clips of deals that may or may not happen and look under the hood, behind the curtain or whatever idiom you prefer for attempting to be thoughtful rather than reactive.





#1  Buffet's Big Points


This month's Fortune magazine has a cover story on Bill Gates and Warren Buffet's bid to get billionaires to give away half of their assets. Below is a sample from Warren Buffett's piece in Fortune this month. He is discussing his philanthropic pledge and intentions:


"...all of my Berkshire shares will be expended for philanthropic purposes by 10 years after my estate is settled. Nothing will go to endowments; I want the money spent on current needs."
Sidebar: I had an interesting debate a few years ago on a non-profit board on which I served at the time. We were discussing annual spending versus reserves - this group had what I consider the ridiculous habit of  keep two years' operating expenses as reserves, which really amounted to job security for the staff more than a desire to be conservative with regard to the mission. Anyway, we digressed to the point we were discussing whether, in the face of a truly enormous need (say, a 9/11 in Southern California; or a 2nd Great Depression) we would spend our reserves on current needs rather than holding them in reserve or endowment. My thought was met with a resounding hammer. 'Never spend the corpus...,' they chimed in unison?
What leads to the notion that one would apparently let people die in the street so that people in the future could benefit? Are those future people more deserving? Are current lives less so? Is it job security? Habit? The quest for immortality?
Buffett's notion seems to have an underlying assumption that there are more than enough current needs to absorb all of his wealth, so what point is there in holding it. Thoughts?
More from Buffett:
...My wealth has come from a combination of living in America, some lucky genes, and compound interest. Both my children and I won what I call the ovarian lottery. (For starters, the odds against my 1930 birth taking place in the U.S. were at least 30 to 1. My being male and white also removed huge obstacles that a majority of Americans then faced.)
My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I've worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate's distribution of long straws is wildly capricious."
Sidebar: Buffett's humility here is as staggering as it is honest and rare. A mentor to my wife always reminds people who are upset about something they've missed or jealous about someone else's good fortune that "they've already won the lottery" by being born in the United States. They aren't dying in the third world, oppressed in the 2nd or having to risk their lives and freedom moving to have a better chance to provide for their families. Further, Buffet hints at an important point: compensation is not tied to productivity in anywhere near the linear way many people assert. Did the $500,000-a-year unemployed Circuit City salesperson-turned-mortgage-broker of 2007 really get an appropriate pay for his/her economic impact when compared to, say, a $90,000-a-year career engineer at Caterpillar, or a $130,000-a-year pharmaceutical scientist? Of course not. 
 
View the whole piece here: 




#2  Municipal Bonds


A much more pedestrian pursuit here, but one worth considering. Some clients and prospects have been listening to Henny-Pennyisms with regard to municipal bonds, particularly those in California. 


The question of the safety and return of munis, like anything else, needs to be looked at in context and in consideration of alternatives.


For example, let's say a California resident is concerned that the whole state is going to fail. Does that mean you don't buy munis? Perhaps. More precisely, however, it probably means the avoid California munis. Sure, you will have to pay the state 10% income tax on, say, South Dakota bonds, but you still avoid the 38% federal hit. 


That said, given the huge advantage for taxable investors,do the math. Before avoiding municipal issues, do the math and determine how much would have to fail before it becomes disadvantageous to own them, and then research the likelihood of exceeding that threshold.  


Further, municipal bonds are not all created equal. Those issued on behalf of a coportation or in support of a project default at higher rates than tax-backed munis. The rate for the latter, according to a 2003 study, was 0.25%, or $1 per $400. What's more, they had a recovery rate of nearly 70%. 






#3  California - Deficit Hype


Not to defend the sorry state of fiscal affairs in California, but Time magazine had an interesting analysis a couple of weeks ago in looking at the 2010-11 budget deficits by state. Although California is routinely lambasted in the national press for being a financial train wreck, the fact is that the state is underfunded by 9.1% of its annual budget -- which is inline with less press-worthy places like Kansas (9.1%), Missouri (9.3%), South Dakota (9%), Kentucky (9.1%), Nebraska (9.7%), Michigan (8.8%), Alabama (8.2%), Virginia (8.2%) and Indiana (9.9%).


In contrast, the real train wrecks are Nevada (56.6%), New Jersey (37.4%), Arizona (35.3%), Maine (32.1%), Illinois (36.1%), Connecticut (29.2%), Vermont (31.1%), Colorado (21.2%), Wisconsin (25.3%), Minnesota (26.4%) and Florida (22.2%) Even Texas, which is continually held up as a model of government restraint, has a 12.8% deficit.


So who is NOT in trouble? North Dakota, Alaska and Montana are facing a surplus (what to do with the money??) , Arkansas is at breakeven and West Virginia (3.5%) has a very modest deficit.








#4  Underappreciated Enablers: Convenient Capitalism




Interesting story in the New York Times last week about hedge fund manager Andrew Hall, who spun off from Citibank last year. Hall's fund has been hurting. Here's what the story says:


"Money managers say life within a bank sometimes can be easier than in the hedge fund world. With large balance sheets that can absorb losses, banks sometimes allow a trader more leeway for bets, such as providing additional capital, and can help traders absorb losses.


"Mr. Hall was 'incredibly successful but his strategy has volatility, and at a bank there's an implicit or explicit backing of your activity, whereas a hedge fund has a finite amount of capital,' says Charles McNally of Lyster Watson & Co., which invests in hedge funds."


Hall was the target of criticism last year for a $100 million payday when he was part of Citi, which arguably wouldn't exist were it not for taxpayer-funded bailouts. 


So the question is this: If a company's explicit or implicit backing makes huge earnings possible, doesn't that negate the idea that someone "deserves" a huge portion of the profits they make for a company? The idea that traders deserve huge chunks of the profits they generate is an essential component of the Wall Street mentality, but the fact of the matter is that the reason those traders are at banks is because - without the backing of huge financial institutions -- they wouldn't generate those huge profits. 


The massive payday are nothing but convenient capitalism. Traders argue that they deserve a lion's share of profits because they made the money, but the reality is much more complicated and owes much more to a complex system in which the trader is one important piece, but is far from an island of profitability. Like entrepreneurs, traders should make money when their capital is at risk, not when it's OPM. 


Traders have been playing shareholders and the public for fools, demanding -- and getting -- paid for using other people's money at a fixed game, where if you make big bets and win, you get $100 million, but if you make huge bets and lose, you have to scrape by on a $500,000 salary for that year -- but then can try again next year with a fresh pool of other people's cash. Those people? They are the teachers and engineers and artists and accountants whose pension funds provide the capital. 























































New Football League?

A longtime NFL executive who was part of - and says he's learned the 'what not to do' lessons from the USFL and WFL is in the process of raising $90 million to start a new professional football league with a spring season and sites in predominantly secondary markets such as Boise and Oklahoma City. The league hopes to start playing in the spring of 2012. 

Lots Going On...



A rapidly growing, PROFITABLE service-based company in the health care field is seeking $1 million in mezzanine or equity capital to expand operations. The company has more than $4 million in revenue and is led by seasoned executives with experience and relationships among the expanding client bases. 


Iconic sports clothing design team is launching a new venture to bridge the gap between athletic wear and everyday wear.  The designer's previous success -- they were No. 1 in their niche globally --  yields relationships that make high-end distribution advantageous, and several top-tier athletes and celebrities are set to endorse. Unique marketing model focuses on channel participation and art gallery partnerships. Seeking $3 million of half-equity, half-debt at a $9 million valuation and 6% interest. 


Partner of a successful wine manufacturer and distributor is starting a new label and is seeking $2 million in equity funding. Major distribution has been secured. Experienced at big, mass-market retail and value-based manufacturing. 


Highly successful entrepreneur from Mexico is seeking a strong No. 2 to run day-to-day operations of a finance and property management firm. Spanish fluency very helpful.


Investors seeking a 9%-15% fixed return on a receivables play may be interested in a 4-year-old hedge fund in the health care space. Fund managers say they have never missed a payment, and companion operating company is rapidly expanding in light of health insurance reform legislation. $100,000 minimum, two-year negotiable lock-up.


Accomplished, detail-oriented, ego-light and versatile former Navy flight engineer is looking to deploy skills in a manufacturing or service company in Orange County. 


Private equity firm is looking to place $5 million to $20 million in NON-CONTROLLING interest in manufacturing, distribution and service companies. 


Innovative credit card company that advances cash to credit-worthy consumer-focused companies is expanding relationships in the health care and educational spaces. Process has a positive public relations spin, and a strong record in the medical vertical space. 


Nowhere to drive your Ferrari fast? Developers are selling lots in unique racetrack-airport concept catering to the uber-wealthy. Garage-condo, landing rights and other luxury amenities. Loosely affiliated with major resort hotel.


JUNE 29 at L'Auberge in San Diego's Del Mar neighborhood: How to Drive Value in Advance of Selling Your Company (or, How to Help Your Clients Drive Value in Advance of Selling Their Company). 7:30 a.m. Hosted by Hutchinson & Bloodgood CPAs, Strategic-Momentum Cnsultants, CitizensTrust, Freeman, Freeman & Smiley LLP and FMV Capital Markets. 


VALUE LEGACY OPPORTUNITY:  Leading non-profit educational institute with a real shot at becoming a global leader in NFP thought leadership has a naming opportunity for $5 million. 


Vulture private equity?:  Staffing company that peaked at $40 million in revenues and was an Inc. 500 firm is now looking for $500,000 to $1 million capital to stabilize in light of recession. Just landed large contract with two major industrial companies -- two of the best known and most respected brands in the world -- for large relationships. Minority-favored contract status. 


An experienced group of merchandisers with the North American rights to a highly successful, trendy clothing is seeking $1-$1.5 million in working capital to bring the line to the United States.


A US-based conglomerate is looking to buy smaller and profitable luxury goods manufacturers for a Southern California roll-up. Companies should have between $10 million and $30 million in revenue.