The economy gets hot, the economy cools off, but always the vast sea of middle-market companies in California need M & A; advice or lately, some suggestions on how to keep the debt wolves at bay while finding new capital.

So it is that Brentwood-based Barrington Associates, perhaps the premiere middle-market mergers shop in the state, is still adding staff, now counting 31 professionals on board.

Long-time Barrington veteran Michael Rosenberg, managing director, is heading up a newly formalized, six-member unit dedicated to helping companies restructure financially via new capital sources or a sale to a corporate or strategic partner.

Too many California companies took on a lot of debt in the late 1990s. Now, with the economy slowing and energy prices spiking, they cannot handle their debt payments, or may be falling out of compliance with bank covenants. Banks are less lax recently about letting debtors slide out of covenants, or missing payments.

Knocking on Barrington’s door are private equity firms and leverage buyout shops. In the late 1990s, when capital was available but prices high, they bought. Now they are sitting atop portfolios with some rotten apples, and want out.

“Out” often means a sale, sometimes to creditors.

On the economy, Rosenberg, who has an excellent vantage point for middle-market companies, said he sees slowness in the retail sector, with some chains reporting minor declines in year-over-year same store sales.

But other sectors, such as medical devices and health care in general remain strong, he said. He expects the overall M & A; scene to be popping on all cylinders by year-end.

“Debt (borrowing costs for an acquisition) is still more expensive, but buyers are finding prices are more reasonable. Valuations are adjusting to current economic times. After such a long bull market, a lot of sellers don’t want to sell (for less than a premium price), but they tend to see the light when the banks start calling back their loans,” said Rosenberg. “We are still quite bullish for the second half of the year.”

Hot Topic

Michael Halpern, of Century City-based Dorchester Advisors Inc., is a below-the-radar screen kind of money manager who likes to find a few good-quality, mid-cap stocks and then hold on to them. In years past, he has had success with such names as IHOP Corp., the Glendale-based pancake house chain. Halpern used to run money for David Murdock, and still travels in somewhat elite circles he manages separate accounts, not a fund, and investors need to plunk down a cool million before he takes them on.

So what are the millionaires being told? Halpern likes Pomona-based Hot Topic Inc., a fast-growing retail chain specializing in the youth market.

Halpern tends to invest only in a few companies, no more than 15 at any time, with larger positions in a handful. So he does more due diligence than most managers. “The first time I visited Hot Topic (headquarters) I didn’t like the concept,” he said. Selling to teenagers is about a troublesome as raising them tastes can change overnight, if not sooner.

But Hot Topic goes to lengths to keep on top of trends, said Halpern, founder of eight-year-old Dorchester. “They send buyers out to ‘rave’ concerts and the like, always looking at what the kids are buying and wearing. They retail goods that no other (major) retailers would dare carry.”

T-shirts featuring musical themes, earrings, belly rings, hip cosmetics and other teen necessities fill up Hot Topic stores, said Halpern. After his third meeting with company officials, Halpern began warming to the concept. Most money managers rarely visit corporate headquarters at all, let alone three times.

As with most of Halpern’s picks, Hot Topic is not an expensive stock, trading at 20 times this year’s projected earnings at a time when the S & P; 500, or the Russell 2000, both broad measures of the market, are trading at 28 times current earnings.

Still, buy a retailer when the economy is going soft? Halpern said interest rates are dropping, meaning that non-equity financial investments are less appealing. “If interest rates go to zero, then you have to buy stocks,” he said.

Team Communications

Back in the corporate hot seat is Michael Jay Solomon, longtime entertainment industry executive, who this February took the reins of publicly held TEAM Communications Inc., one of the few independent television producers and distributors left in the business. In a nutshell, TEAM stumbled badly last year in acquiring film libraries, mostly of old televisions series and specials, for which it paid too much, said Solomon.

When the board got a whiff of the too-pricey library acquisitions, it jettisoned the former chairman and CEO and brought in Solomon. First thing he decided was to take a hit and write down the value of the purchases and took $41 million punch to TEAM’s earnings.

The good news is that with that non-recurring writedown, TEAM has a film library and is adding some more reels to the 2,000 titles it has in stock. New productions are proceeding apace. Solomon also cut staff in half, and lined up new equity through Rochester, N.Y.-based Schneider Securities Inc., a brokerage that will deal with micro-caps.

Is there is market for old TV shows? Solomon insists there is. “I Love Lucy” still plays daily in the Los Angeles market, and a friend of Solomon’s recently returned from Maui, where he watched “Hawaii 5-0.” “There is life in the old television shows, both here and all over the world,” said Solomon.

Bankruptcy Firm Acquired

Kirkland & Ellis, a Chicago-based law firm, has acquired Wynne Spiegel Itkin, an L.A.-based boutique bankruptcy firm.

“Over the past six months we have been approached by a number of major firms,” said Richard L. Wynne, who becomes a partner at Kirkland & Ellis.

“Our clients were looking for a broader variety of services from us, so we wanted to hook up with the best firm that matched us both professionally and personally.”

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His new book is “The Pied Pipers of Wall Street: How Analysts Sell You Down the River,” published by Bloomberg Press. He can be reached at [email protected].