Takeovers target firms with ties to Helena

In recent weeks, news broke that two public companies with operations in Helena are targets of private takeover bids. A Dallas-based capital management firm made a $5.93 bid for Affiliated Computer Services, which has an office on Last Chance Gulch that employs 80 and administers the Medicaid program for the state.

Meanwhile, a private equity firm from New York made a $3.1 billion offer for Claire's Stores, the retailer of jewelry and accessories primarily for teenage girls with a store in the Capital Hill Mall.

The deals were just two of several in recent months that involve public companies going private. In 2006, 126 firms in the U.S. went under private ownership.

Mark Semmens, managing director of investment banking at D.A. Davidson in Great Falls, said a confluence of three factors has led to the increase in companies eschewing public capital.

First, he said, the cost and hassle of complying with increased regulations governing public companies, including the Sarbanes-Oxley Act, passed after the accounting scandals of the turn of the century, have made going private more attractive.

"Particluarly for smaller companies, those costs relative to the size of the company are becoming excessive," he said.

Also, managers have greater flexibility in private firms, as Wall Street can't pressure the company to meet quarterly profit expectations at the expense of long-term planning.

Those two factors have long existed to some extent. But the catalyst for recent private takeovers is the surge in private equity firms looking for places to invest massive sums of cash.

These large, privately managed funds are flush with money invested by groups like pension funds, insurance companies and even high net-worth individuals. Using billions of dollars and lots of leverage, these firms can buy up entire public companies.

When that happens, individual shareholders typically get a check in exchange for their shares. With capital gains now taxed at just 15 percent, Semmens said that's not a bad deal.

While the number of companies going private is growing, it's not a threat to the world of stock market investing. The 126 companies that went private last year represent just a fraction of the thousands of publicly traded firms on the U.S. exchanges.

"It's an interesting phenomenon, but it certainly doesn't spell the end of the public capital markets," Semmens said.

First Pitch: We've already had our share of warm spring days in Helena, but the surest sign of the change of seasons happens tonight at 6 p.m., when the St. Louis Cardinals open defense of their World Series title against the New York Mets.

Yes, it's baseball season again -- and for many of us, that makes the problems of the day just a little less significant. Happy Opening Day, one and all.

E-mail your Open for Business ideas to john.harrington@helenair.com.