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Company Valuator

An exclusive monthly news report for private company CEO's
May 30, 2006
Sign of the Times
Did You Know
Ask the Expert
Market Stats
Helpful Links
Quote of the Month:

"If you are ever caught on a golf course during an electrical storm and are worried about being struck by lightning, simply hold a 1-iron over your head. Not even God can hit a 1-iron".

---Lee Trevino

Sign of the Times

A monthly market commentary

“Succession & Consolidation Issues That Happen Every Day”

Think back to when you started your company. Not unusual for many successful entrepreneurs to have started without a college education, or perhaps with a state university pedigree.

What this person does know is that they have a knack for business and they dont like working for someone else. The business may have been started by getting a second mortgage on the house, borrowing from the in-laws, maxing out the credit cards and even raiding the children's college fund.

He (if you are female, please substitute "she" :), works around the clock, six and seven days a week. His wife takes care of the house, but also helps out at work doing whatever needs doing. This is the 24/7 woman we have always heard about. I've never known a 24/7 man. Not sure I want to know one. Anyway, after surviving a number of near-death experiences, the business is going pretty well--he's not taking any big salary, but he can pay the bills and the business is expanding. Excess profits are ploughed back in to growth.

Despite the fact that he went to public schools, he sends his three children to private schools. He joins the country club but rarely uses it. However, his kids love it and are good golfers and tennis players.

Business clicks right along. The company becomes well known locally and he's also been able to expand to a few other cities within the region. The company is receiving recognition for its achievements with numerous local and regional awards.

He sends his kids off to elite colleges and loves telling anyone who will listen about his children's success. During summers, he offers his children opportunities to learn different parts of the business, but nah, they're off to Europe instead.

The kids finish college and grad school. After bumming around for a few years they convince their dad that they should get experience elsewhere at another company or another industry before they come back.

The kids move to New York City, Chicago, San Francisco or London to begin their careers where remarkably, a lot of their friends from school are living. Life's good.

Dad still works six days a week, but he finds he is actually starting to enjoy going on vacation and playing golf. His kids have been promising him for 10 years that "next year" they are going to move back to join the family business.

New technology is creeping into the industry and although Dad is less than comfortable with it, he begins to adopt it not exactly sure how it all works. His fear in not using it is that he will be left behind. XYZ, a company in the same business where he was friends with the CEO (both were the industry association president at different times) has just gone public with a very healthy multiple. Now with a public stock, they are buying up everybody.

Having seen XYZ's IPO, some of his long-time customers start asking questions--a few even start to do some business with XYZ on its e-commerce site (something his company doesn't even have yet). All sorts of issues start arising, like China, India, and outsourcing. Things were a lot simpler when all he had to do was make the customer happy and keep his costs low..

XYZ is getting more and more of his business--they are charging 20% less, which he thinks is insane. When he talks to his lost customers, they say that a combination of factors attracted them to XYZ--doing business with them is cheaper, faster, and better.

He looks at XYZ's public financial statements--and can't believe his eyes. Despite charging less, they have higher margins!

His health is starting to concern him. His doctor has told him he needs to slow down--at the time his business needs him to speed up! He calls his children to see if they are ready to come back--they each tell him "No", that it wouldn't be fair to their kids, but they do thank him for setting up his grandchildren's trust funds and paying for their private schools--it really helps. He tells his kids he understands as they tell him how much more difficult and expensive it is today than when he was growing up. Gas was probably only 25 cents a gallon then (hmmm, if they even HAD gas back then) verus $3.39 a gallon today.

Reluctantly, he hires a firm to represent him in the sale, merger or acquisition of his company. Eventually, he merges with XYZ.

XYZ's stock goes up as the acquisition is accretive. He leaves after 6 months as he disagrees with decisions that are being made at the top. Sealing his frustration was a phone call with the CEO, in which response to his complaints was, "Last time I checked, we bought your company."

Sound unique? Not a chance. It happens every day on Wall Street.

Did You Know

“Hawaii Superferry Set To Travel Between Islands”

Well, now that we are back to taking the kids to Hawaii for a much needed?Memorial Weekend?break, let me introduce you to the Hawaii Superferry.

Without passenger boats, bridges or tunnels linking the islands of Hawaii, the state's four island counties in some ways are as isolated from one another as they are from the mainland.

That may change when the Hawaii Superferry, a four-story catamaran, begins running from Honolulu, on the island of Oahu, to Maui and Kauai in about a year. A second boat connecting Honolulu with the Big Island is expected to start service in 2009.

The launch date is scheduled for July 1, 2007. This is assuming that environmentalists, lawmakers, farmers and lawyers don't kill it. I'm not even going to comment on that.

The Superferry is expected to start service with one boat the length of a football field offering daily service from Honolulu to Maui taking about three hours, compared with about 40 minutes by plane. The shortest trip, from Honolulu to Maui, would be 89 nautical miles. The Honolulu-Big Island line would be the ferry's longest voyage at 140 nautical miles.

Sounds like a great plan to me. I'm on board.

Ask the Expert

“The Emerging Caribbean: Owning A Slice Of Paradise”

Beyond Hawaii,?an emerging?trend is?affluent Americans looking at other tropical areas?consistent?with "the good life", warm weather,?fewer crowds, and where it may be even?less expensive.

That would include Donald Trump. Wait. Don't leave now, give me a chance to finish. When Swiss/Italian developers first asked Trump if he'd like to partner with them to build a golf course and villas on Canouan Island in the Grenadines, he was perplexed. "I didn't know Canouan," Mr. Trump said in an interview with the Wall Street Journal.

Neither do most Americans. Buy when Mr. Trump celebrated the grand opening of his luxury villas and gold course on Canouan with a New York cocktail party recently, it was just one of a number of new resort developments on Caribbean islands that may not ring a bell--places like Great Exuma, Roatan and Scrub Island.

With at least 7,000 islands in or bordering the Caribbean Sea, representing 23 sovereign states and various foreign dependencies, there's a lot of room to grow. Scott Berman, a partner specializing in the hospitality industry at PriceWaterhouseCoopers in Miami, says that at least 30 resorts with some residential component are planned or under construction throughout the Caribbean, double the number of two years ago. While some are tiny and individually owned, others are big players like the Ritz-Carlton Hotel Company LLC and Four Seasons Hotels and Resorts, who cater to vacation owners who, no matter how secluded the island, don't want to be too far from room service and a massage.

Of course, some Caribbean islands are also famous as tax havens, charging permanent residents no or low property, capital gains, inheritance or income taxes (although Americans should always check with their tax advisors to see if and how these breaks apply to them). For some wealthy individuals, that's as much of an incentive to buy as the prospect of a cool drink and a hammock by the sea.

Market Stats

“Stock Pick..Buy It”

I've yet to recommend public stocks because that is not our business, but assuming you understand that?is?the case?and recognize we are not investment advisors as well...then I am going to tell you about a stock?from time to time?that warrants serious attention.

Yahoo! (Nasdaq, symbol yhoo) is such a stock. Simply stated, Yahoo! is the No.1 Internet brand globally and the most trafficked Internet destination worldwide. Yahoo!'s global network includes 25 world properties and is available in 13 languages. It has 365 million unique users and 401 million active registered users. It also owns Overture, which offers sponsored search to more than 100,000 active advertisers and its distribution partners, including Yahoo!, MSN, and CNN.

If you're looking for a growth stock with a proven product, an amazing model, and still trading at a 25 P/E level, Yahoo! is your ticket. The stock is trading near its 52 week low ($31.50 as I write this), well off its $43 52 week high. The low range wont last. Once this recent tech sell-off concludes, and I believe it is close, Yahoo! will be among the first to enjoy the rebound. With a market capitalization of $44B, it can certainly support a number in the $60-70B range. Google has a market cap of $115B.

Helpful Links

“This should be easy enough to guess....

of course...

it's For all the reasons stated above, if you haven't explored Yahoo! in awhile, check it out. The website has been redesigned for a cleaner, easier to browse portal, yet steeped with great content--across the board.??????????

Yahoo! Finance a great resource for general financial information as well as specific public company information.

If you're a sports nut, the opportunity to follow all the major sporting events live and it's incredibly easy to do.

Yahoo! has a bright future ahead, indeed!


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