At long last at least from some investors’ perspectives the small guys are again beating the big boys.
“We see the market rotating to small cap stocks,” said Leslie F. Vermut, president of Weinberger Asset Management Inc. a Westside money manager. “In the month of May, the Russell 2000, an index of small-cap stocks, was up 11.16 percent. The S & P; 500 (made up of large stocks) was up 6.09 percent.”
The great bull run of the 1990s, usually expressed by the Dow Jones Industrial Average a blue chip indicator reflects the vastly improved management of big American companies, said Vermut. “They have management incentives, they are willing to trim,” she said.
Vermut believes that the new emphasis on profits, combined with a good economy, led to the bull run. But the small cap companies which historically beat big caps will have their day again, and it may be now, says Vermut.
She sees the economy as continuing on a medium-growth path, with inflation under control a scenario she believes will extend into next year.
“Growth will slow down a bit in the second half (of 1997), but inflation will remain under control. I think it will continue into 1998, but of course, like anybody else I may have to change my prediction,” she said.
In talking to Vermut, we were reminded that the S & P; 500 index is up 15.44 percent through May 31 and this was going to be the slow year.
If the name “Weinberger” rings a bell with you, that may be because of Tom Weinberger, head of corporate finance for brokerage Sutro & Co. Inc. who is also Vermut’s husband.
But will they go public?
It’s not unheard of for employees or management to buy a company, or a division, from a public company, but recently it has been rare.
With the stock market trading at eye-popping multiples, rival public companies can usually finance acquisition binges by issuing stock, and outbid most employee groups in acquiring divisions that are for sale.
Plus, companies are expensive today making it pricey to buy for employees who do not always have deep pockets.
So it was interesting to see West Los Angeles-based lawyer Regina Shanney-Saborsky, of Mitchell, Silberberg & Knupp LLC, engineer an employee buyout of Brea-based American Microwave Technology Inc., formerly a subsidiary of Spectrian Inc., based in Sunnyvale.
AMT manufactures high-tech amplifiers, used in magnetic resonance image devices, and in military transmitters, which boost electronic signals.
“Spectrian had been trying to sell (AMT) on the open market, and there was other bids. But the employees prevailed,” said Shanney-Saborsky.
Employees used savings in the Spectrian pension plan, some managers put up equity, and there was a third-party lender, said Shanney-Saborsky, who declined to identify the party.
Shanney-Saborsky conceded most high-tech companies prefer to grow by going public and generating capital in that manner.
“AMT took the opposite approach. Here, the employees decided they could increase the opportunities for growth by taking AMT private,” said Shanney-Saborsky.
She didn’t want to divulge details, but said the transaction was in the $3 million to $6 million range.
But live by the sword and die by the sword: The long-term plan of the employees is to go public, confirmed Shanney-Saborsky.
Making the switch
New York-based brokerage Oppenheimer & Co. Inc. recently put out a “buy” on El Segundo-based Computer Sciences Corp., the computer programming company. CSC is big; it posted $4.7 billion in sales in 1996.
Computer Sciences’ perceived weakness in years past has been an over-reliance on the federal government, particularly defense.
But in the last year it has boosted its commercial business by 32.1 percent, and international sales rose 21 percent, said the brokerage.
In 1995, Computer Science made 44 percent of its sales to the federal government, but in fiscal 1997, that will drop to 29 percent, estimated Oppenheimer.
Westside boutique investment banker Larry Hurwitz, of the Lawrence Financial Group Inc., has in years past lined up money for everybody from cleaning product companies to low-cost cellular phone outfits.
His latest money job: Landing a $3 million line of credit for a San Diego firm, Voice It Worldwide Inc., traded on the Nasdaq.
“This gives the company adequate working capital, at a lower interest rate than they had before,” said Hurwitz.
Voice It Worldwide manufactures a small, handheld gadget into which people can record phone numbers, important ideas or other tidbits.
The device can understand speech. “You can say, ‘Give me the phone number of Benjamin Cole’ into it, and get the phone number, if it had been recorded,” said Hurwitz. Numbers are listed on a LCD display.
Voice It Worldwide is premiering an upgraded version of its product to retailer Office Depot Inc. and needed working capital, said Hurwitz.
“My job was to work with the lender, and convince the risks were not that of a risky product launch, but the evolution of an established product,” said Hurwitz.
Coast Business Credit Inc., a commercial finance unit of Torrance-based Imperial Credit Industries Inc. (the domain of Chairman H. Wayne Snavely) is extending the line of credit.
The publicly held Children’s Wonderland Inc., which operates 14 daycare centers nationwide, has tapped Westside investment banker Gary Post, of Ambient Capital Group Inc. to help it execute a turnaround.
Transactions, probably acquisitions, are imminent, said one market source.
The company’s stock has dropped $10 to $1 in the last three months, some say because the company’s underwriter stopped supporting the stock. Children’s Wonderland went public in May 1996.
Company officials and spokesman would not discuss transactions. Furthermore, litigation is pending against the former brokerage, making everybody very tight-lipped.
Additionally, in mid-May the Los Angeles-based company announced it had entered into a consulting arrangement with Jeffrey Kahn, a turnaround expert and professor of finance at Mount St. Mary’s College in Los Angeles.
Senior Reporter Benjamin Mark Cole covers the investment community for the Los Angeles Business Journal