Wall Street West—Landmark L.A. Firm Looks Closely at Small-Cap Plays

0

The name Wedbush, as in Wedbush Morgan Securities, has been a part of the Los Angeles financial scene since 1925.

But these days, the old finance house is taking a new look at small-cap securities.

Geoffrey Bland, co-managing director of E-Capital Corp., which owns Wedbush Morgan, is helping to manage a $150 million pot of money, in part by targeting investments in small-cap stocks, especially in out-of-favor industries such as basic manufacturing.

Though he won’t name companies, Bland said he recently invested in an environmental services company that has $60 million in annual revenues, positive cash flow, no debt, and a market cap of merely $20 million.

Bland also finds it interesting that Mikasa Inc., a ceramic plate importer based in Long Beach until recently, announced last month that it had decided to go private.

With about $330 million in annual sales, Mikasa was one of a legion of small-cap stocks that labor in darkened corners of Wall Street, lacking the major institutional sponsorship (backing by major brokerages and money managers) that could propel its stock northward.

Mikasa’s stock had drifted sideways or worse for five years, trading recently in the $10-a-share range.

But on Sept. 11, private French crystal manufacturer J.G. Durand Industries SA announced a $16.50 per-share deal to acquire Mikasa that was already approved by majority shareholders.

It’s the sort of situation Bland likes.

After buying a healthy stake in a small-cap company, Bland’s plans for profit vary depending on the situation. In general, he is looking for a candidate ripe for a management-led leveraged buyout (a going-private transaction), or a buyout by another company, or an additional capital infusion of equity to push the company forward.

However, an industry roll-up of small-cap companies to create a heftier player through economies of scale and overhead cutbacks is not a Bland strategy.

“On paper, roll-ups look good. In real life, the acquisitions always take more time to digest that originally thought, and what you thought were duplicative costs don’t always turn out to be,” he said.

Those who buy a lot of companies in rapid succession can also discover that they’ve acquired a few bombs along the way.

But there is a tough question for Bland: Small- and mid-cap stocks have been out of favor on Wall Street for more than 10 years, in part because the behemoth and still-growing mutual funds many with tens of billions of dollars to deploy can only “afford” to buy blue chips. What’s to say the current environment on Wall Street will change anytime soon?

“Well, we are not looking for companies to flip,” answers Bland. “We are looking for good quality companies. If nothing happens (on Wall Street), then maybe we’ll take the company private, and take handsome dividends or cash flow. It’s a long-term play.”

New Life for Old Name

Speaking of old names on the Los Angeles finance scene, here’s a 71-year-old name that has reemerged after a 13-year hiatus: Bateman Eichler & Co.

It was in 1929 that Rudolph Bateman founded Bateman Eichler & Co., a regional brokerage that prospered through the generations and was last seen operating locally under the name Bateman Eichler, Hill Richards before being bought by Chicago-based financial holding company Kemper Inc. back in 1987.

That brokerage was eventually merged into Everen Securities, which itself became part of First Union Securities. The local analysts disappeared long ago.

Fast forward to 2000, when the grandson of Rudolph, a money manager by the name of Peter J. Eichler Jr., was researching trademarked names, hoping to put his lock on the words “Aletheia 100 Index.” Almost on a whim, he also checked the old “Bateman Eichler” name.

“It turns out nobody had ever trademarked it,” said Eichler.

It was perfect news for him. As it was, he was starting a stock brokerage to complement his money management shop Westside-based Aletheia Research and Management Inc. and he was casting about for a new name.

So once again there is a Bateman Eichler & Co. LLC, already with six stockbrokers on board, in the 100 Wilshire Blvd. building in Santa Monica.

As a money manager, Eichler has been posting audited returns well above market indexes by following insider trading and the buying of America’s titan investors, such as the Bass family of Texas, among many other variables.

With that in mind, Eichler said last week he thinks oil stocks have peaked as have oil prices though there may still be some value left in natural gas plays. In particular, he likes the Big Board-listed McMoRan Exploration Inc., which the Bass family has been buying. McMoRan has just found “significant” amounts of natural gas, according to Eichler.

Hurwitz Moves

Raconteur, antique pen collector and Westside boutique investment banker for Southern California businesses looking for fresh capital. All describe Lawrence Hurwitz, who is hanging his fedora in a new spot, the downtown Los Angeles offices of Marshall & Stevens Inc., one of the nation’s leading business appraisal outfits.

Hurwitz assumes the title of chairman, while Mark Santarsiero stays on as chief executive and president. Hurwitz has merged his old Westwood-based Lawrence Financial into a joint venture with the 125-employee Marshall & Stevens, and will seek funding opportunities among the latter firm’s clients.

“Every appraisal is a loan opportunity, and every loan is an appraisal opportunity,” said Hurwitz. “We are doing appraisals anyway. We might as well step up to the plate and offer loans as well.”

Declining Fortunes

E4L Inc., the Encino-based retailer that’s trying to marry the television infomercial business with the e-tailing glitz of a Web site, is definitely on sale on Wall Street.

Since trading for nearly $9 a share in April 1999 amid enthusiasm for all things e-biz, E4L stock has been relentlessly rank, trading down to 25 cents a share last week.

Its market cap is now a mere $11.1 million.

Ouch.

___________________________________

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].

No posts to display