Century City-based Houlihan, Lokey, Howard & Zukin was the nation’s second-busiest investment banker in 1997, in terms of middle-market mergers and acquisitions deals, according to Securities Data Corp.
Information just released shows that HLHZ worked on 34 middle-market M & A; transactions last year, worth nearly $1 billion in the aggregate. Only Donaldson, Lufkin & Jenrette Securities Corp. worked on more middle-market deals. In dollar terms, HLHZ was ninth on the list.
John Mavredakis, managing director of HLHZ Capital, the firm’s investment banking arm, said last week that the big numbers reflect hard work, and also market demands.
These days, people want a deal done fast, and buyers are plentiful, he said. “In the old days, we would take on a client, a company, and you would expect to sell it in nine to 12 months,” he said. “Now, we are selling in four to six months.”
Other investment bankers and M & A; securities lawyers have commented alike: With the advent of the fax, e-mail, cellular phone, phone mail, overnight delivery as well as more-skilled and agreed-upon negotiating procedures people want deals done more quickly than in yesteryear.
Mavredakis and other bankers will probably continue to put in the long hours the deal flow isn’t cooling off. 1997 was an all-time record year for M & A; work in the United States, with more deals, and higher dollar volume, than ever before. So far, this year is almost on par, according to Mergerstat, an arm of HLHZ.
Through the first three months of 1998, there were 718 deals that were disclosed, at an aggregate value of $143.4 billion. That almost mirrors the pace of first quarter 1997, with 621 deals at an aggregate value of $178.5 billion.
“We have been turning away work,” said Mavredakis, echoing the sentiments of other bankers.
The recent news that San Francisco-based Sumitomo Bank of California is being sold by Sumitomo Bank Ltd. has raised questions about the future of downtown L.A.-based Sanwa Bank California.
The Sumitomo sale is being viewed as perhaps the first of a wave of sales by Japanese financial institutions, which need cash to help offset bad loans back home.
One local investment banker with a major firm said, “(Sanwa) is the next to go. I’ve heard Sanwa wants to sell.”
But Sanwa Bank California spokesman Keith Karpe was adamant that there are no plans to sell the bank, which has almost 170 branches in California. “Sanwa Bank California is not for sale. Sanwa Bank Limited doesn’t need the money,” said Karpe.
Sanwa is a publicly held bank, but is traded only in Tokyo and Frankfurt. So it is unlikely that large shareholders will exert sell pressures on Sanwa in the American style.
Gems in the rough?
Unregistered securities exist in a relatively obscure world, but Jack Norberg of Tustin-based Standard Chartered Investment Co. tracks that world closely. And he’s especially bullish on three old-line L.A.-area companies with unregistered shares.
They are: industrial real estate developer Watson Land Co. of Carson, cotton producer J.G. Boswell & Co. of Pasadena, and downtown Los Angeles-based LAACO Ltd., which owns the Los Angeles Athletic Club, the California Yacht Club and several self-storage properties.
Generally speaking, companies with fewer than 500 shareholders are not required to file their financials with the Securities and Exchange Commission, and their “unregistered” shares are not traded on any exchanges. They can be bought through people like Norberg or some can be found on the OTC Bulletin Board.
Norberg is a long-term investor (read glacial) who is now waiting for generational events to ignite these three holdings, all of which he has held for at least 10 years. All three of these companies are now into their third and fourth generation of family-dominated ownership and control but the spreading number of family members means more people who want income, or capital appreciation. You can’t eat land and buildings.
So shareholders may be looking either to sell, or to improve earnings and dividends (notably, Watson pays dividends monthly), said Norberg. Either way, the shares would move higher. If shareholders sell out, the buyer, most likely a big public company, would likely pay a big premium for these illiquid, family-controlled entities. And if they don’t sell, the improved earnings and dividends will drive the share prices higher, he said.
“When you buy stocks such as these,” said Norberg, “you must think in terms of years, or even decades. But now, the timing may be right.”
Vets, dentists and doctors may soon be a bit more spiffily attired than normal, as scrubs transition beyond the whites, pale greens and blues long associated with institutional health care.
Behind that development is Larry Hurwitz of Los Angeles-based Lawrence Financial Inc., whose forte is sewing up financing for small and medium-sized companies.
Hurwitz connected Scrubs Inc., a San Diego-area health care clothing manufacturer that sells primarily through catalogs, with Q Financial Inc. of Princeton, N.J., a financial firm that specializes in lending to catalog companies.
Hurwitz helped Scrubs secure a $4 million loan from Q Financial, which Scrubs is using to further an expansion into retailing through company-owned stores, including one store planned for the sprawling Ontario Mills mall.
“There is financing out there for every deal in the world,” Hurwitz said.
Unlike many clothing makers, Scrubs could not sell its receivables to a factor. When you sell through catalogs, there are no receivables, although you incur production costs in advance of sales, just like regular apparel companies do.
But Hurwitz solved the problem through Q Financial, so expect to see some wilder garb on health care workers.
“We produce very high-quality, 100 percent cotton (scrubs), and we use a lot of speciality prints, things like flying pigs, florals, frogs and dogs, and Martians, all very tastefully done,” said Steven Epstein, president of Scrubs.
Contributing reporter Benjamin Mark Cole writes about the local investing community for the Los Angeles Business Journal.