simon/bc/19″/mike1st/mark2nd

BENJAMIN MARK COLE

Senior Reporter

Market prices of companies have reached levels high enough to cause jitters among many investors, but William Simon Jr., West Coast managing partner for William E. Simon & Sons LLC, says there are opportunties aplenty for those careful about price and strategy when they buy.

“Oh, prices are high, relative to a couple of years ago. So now when you buy, you look for a company that might benefit from stronger management, or by a merger with other companies,” said Simon.

In 1996, Simon’s firm acquired six companies with combined annual revenues of nearly $1 billion. In all, Simon-owned enterprises have combined revenues in excess of $6 billion.

William E. Simon & Sons LLC was founded in 1986 by former U.S. Treasurer William E. Simon, and his two sons, Bill and Peter.

Bill opened up the Los Angeles office chosen for its access to Asia in 1991.

The Simon shop is a self-described “private investment firm and merchant bank” that invests money from the family fortune, and from others seeking returns associated with the active management of investments. The Los Angeles office now has 28 employees.

The senior Simon amassed a sizable portfolio in the early 1980s, as a pathbreaker in the leveraged buyout game. He bought and sold companies that owned such brand names as Avis, Wilson Sporting Goods and Gibson Greeting Cards.

But too many others followed in his footsteps, driving prices up.

So the senior Simon founded Simon & Sons, with an eye on longer-term investments.

The senior Simon, 69, is not as active these days in the company. “I turn to him for guidance on major policy decisions, and I talk to him almost every day but more and more, what we talk about is not business,” said Bill Simon, 45.

In buying companies, the Simons’ firm tries not to pay more than five to six times annual free cash flow the amount of cash left over after all expenses, including capital expenditures, are paid, but before taxes.

“You might go higher than that, to eight times free cash flow, if you are buying a ‘platform’ company,” said Simon.

He described a platform company as one onto which other companies could be added or merged, thus gaining either economies of scale or synergies. In general, smaller companies sell for lower multiples than larger companies, said Simon.

Thus, one platform company can be purchased for a higher multiple, and several smaller companies can be purchased later for a lower multiple and molded into the larger comapny. “That way, you lower the overall multiple,” said Simon.

Too, Simon & Sons is buying for the long-term, said Simon. “The immediate return is not so important.”

In addition to buying companies, Simon & Sons has become active real estate investors, buying hotels, office buildings, apartments, and loan portfolios from distressed banks and thrifts.

They now own several thousand apartment units, and more hotels and office buildings than can be counted with the hands and feet.

Where does Simon see the big opportunities now?

“Outsourcing,” he said.

More and more U.S. companies are hiring subcontractors or temporary workers to get certain tasks done. Many manufacturers, for example, are concentrating on what they do manufacturing and leaving packaging and delivery to subcontractors. Those that can efficiently supply services will reap benefits, said Simon.

To that end, Simon & Sons has assembled an empire in logistics companies which plan the movement of goods. In 1996, Simon bought the Bekins Co., a moving and storage company; the North American operations of the British freight forwarding company LEP International Worldwide Ltd.; and Matrix International Logistics Inc., a company that plans moves.

“Even a company like Kodak will outsource the movement of products it manufactures,” said Simon.

More and more, Eastman Kodak will concentrate on manufacturing of film or copiers, and leave the transportation to others, said Simon. “That’s something that’s pretty far advanced in Great Britian, and coming here,” said Simon.

Companies involved in trade in Southern California stand to benefit as well, said Simon. “You look at trade, increasing by 15 percent a year through the ports of Long Beach and Los Angeles, and that’s in a recession,” he said. “There are possibilities there.”