Now it is clearer why McKesson hit the iSoft plc posts here. The Timesonline covers the story that the iSoft auction is drawing its brakes with three serious, and possibly four, suitors waiting: McKesson, Cerna [sic - Cerner], General Atlantic Partners and (unnamed but presumably) Philips.

The first three are all major US players in the clinical applications market (General Atlantic through ownership of Eclipsys). And all face at home strong competition (albeit in a growing sector) perhaps most notably from privately-held Epic Systems Corporation. Epic has shown stunning organic growth since 2002 and client love for them abounds. Epic's internal reputation amongst its IT recruits is mixed though, varying from "dynamic" to "a sweatshop" and the firm is an impressive visa-sponsor for IT engineers from the sub-continent. McKesson, by contrast, owes much of its growth in the last decade to the acquisition of HBOC, Inc. in 1999.

The likely sales price cited by the Times is circa £200m. That is one times sales where 1.5 times might be more usual. However, the small matter of a funding gap of £100m-£150m over three years explains. Of course, that £200m number could have been reached in any number of ways, with adjustments for iSoft's context: x8 free cash flow; replacement value; P/E peer comparisons; x4 EBITDA; Discounted Cash Flow [the buyers' favourite]; and so forth. But however the skinning of the cat / making-up of the swine was argued, getting on for twice current market cap does not look unreasonable - in the absence of further detail.

Finally, this long-holding scribe cannot but cynically admire the timing of the leak (aka setting the bar) from the Times' unnamed source - (cross-ref earlier post on Interquest and Midas). Swings and roundabouts.

The writer holds iSoft equity

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Small link from the Globe & Mail (with the full gamut of ideologues represented amongst the commenters).

In an echo of the massively successful senate gambling bill ambush in Washington that set the cat amongst the online poker pigeons (and their NETeller type associates), the opposition Canadian Liberals and the Bloc Québécois have an opportunity to wreak political havoc on the minority Conservatives with these (likely) hearings.

Trust ramifications? Unlike the parrot, it would appear that their fiscal envelope is not quite demised, bereft of life, deceased, no more, ceased to be, passed on, resting in peace, pushing up daises...(continues here). It is merely stunned.

Hopefully olive-growing Canadians in Andalucía will weigh in as before.


Indebted to
Canadian Capitalist for covering the debate; and Cassandra for the reminder of the Norwegian Blue sketch. Lovely plumage.

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Mr Barnanke's just released prepared remarks to the Senate's Committee on the Budget covered the alarming threat of heavy Social Security entitlements to the US deficit and economy in careful demographic detail.

Well, maybe not that alarming: in these easy money times it's worth only (40) Dow Points thus far. Old issue coupled with faith of the sit-out-the-hurricane variety in action.

What will it take for a necessary core of Congress, Senate, the Administration and voters to grasp the nettle?

[Ed: a Midas piece in thisismoney.co.uk, maybe?]

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Thisismonied. Again.

Thursday, January 18, 2007 | | 0 comments »


It is official. This investor loathes Midas of thisismoney.co.uk, net mouthpiece of the Mail and Standard old media stable. For the second time he/she/they have tipped (if that is what doing a mate a favour is called these days) a company your scribe was a Monday afternoon away from taking a stake in. Said shares rose 30% thanks to odd jobbers baaa-ing in. Slightly larger chaps ("enquiring minds want to know") stepped neatly out and and interested onlookers wonder how they might cultivate malleable press contacts (cru classé supposedly).

Utter sour, cynical grapes. This time it was the dinky recruiter Interquest plc (LSE:ITQ), officially "thisismonied" on Sunday 14 Jan. Graphic result below.



The UK recruitment sector is what M&A artistes refer to as fragmented (read: consolidatable, for a fee). It is also on the front line of economic activity making getting into any of them, but especially a single-market specialist like Interquest (IT temps), a cyclical bet.

Nonetheless, ITQ’s attractions include: the CEO (Mr Ashworth has done the start-up to sale bit before and as a result has the City contacts and credibility); sound books if one is content with the firm's control of its large factoring requirements (weekly wage expenses being a major cash outgoing); a readily available product (IT grads have the highest rate of unemployment of any discipline in the UK); and, until Friday, equity with a very nice price. Now it is merely OK.

A similar (in financial profile) and still underpriced (a humble opinion) play in the sector is the more diversified (geographically and by business) Empresaria plc (LSE:EMR). The company is more a financial investor in existing, small recruitment specialists than a centrally run, operationally focused outfit. Effectively, it is a cross between a franchiser and a venture capitalist. The theme is let the equity-interested founders of each bit of the portfolio empire run their shops while the center leverages the lot by encouraging cross-selling and knowledge-exchanges, seeks out new business development opps and, crucially in this scribe’s view, manages/optimises the group factoring and invoice discounting policy and practice.

EMR too has attractions: the accounts are sound outside the black box of factoring (how about a recourse, non-recourse split with terms for a start?) and fashionable spiel of we-use-adjusted metrics (come on, now - does any board in all seriousness really hang its hat on that?); earnings growth is historically 25% to 30% and the same is forecast in ’07 and ‘08; the taking of stakes in diversified recruitment firms may end up fitting nicely with these fragmented-consolidating times; international exposure (notably Eastern Europe, India, Japan and Australia) is a diversification bonus; and 35% of the equity is held by three of the Directors.

The company is chaired by a recruitment veteran, Tony Martin, which (hopefully) satisfies the know-what-you-are-buying part of their acquisition method. CEO is Miles Hunt, but not the Miles Hunt who sings the theme tune to Underground Ernie on CBeebies. This Mr Hunt is a former company secretary (of caterers F. Bender Ltd) and MBA founder of the Empresaria Group.

The author asks Mr Hunt to supply the Midas columnist(s) of thisismoney.co.uk with a couple of cases of 1st crus asap, for his/our firm too deserves to be known of in the tabloid-reading, share-punting public. Or, at the very least, have Underground Ernie spread the word amongst the future job seekers.

A trading update is likely by end-Feb with full year results 4 weeks thereafter.

The writer owns Empresaria plc equity

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Christmas, as atheist, agnostic and believer alike have come to know, is about how successful retailers will be in getting their piece on earth. Wrapped up with this spiritual-like focus on sales is the flogging of gadgets to the public, a public happy to collaborate through the suspension of good sense. Which is how this scribe came to own an Archos AV500.
So pleased was he with this astoundingly versatile piece of kit that a small scrutiny of the firm’s accounts followed. No medium or long term debt, exploding sales, a new significant partner and A Plan. A forward PE of 42 speaks for investors’ faith but historical cash flow (back to 2002) has been either outward or limpid.

And so here’s the thing. The new product line missed a month of the Christmas sales period due to poor execution (or "in order to meet its quality standards" in Archos-speak). This late delivery to distributors hit sales forecasts and the shares (JXR:PA). The Archos boys are sitting on a boatload of inventory as a result.

With the constant danger of massive competitive commoditization it looks highly incompetent for a niche leader to miss the prime sales period of the year. The cash must flow or the firm is asking for funding trouble however solid the books may be now.

Nonetheless, fabulous gadget. But some fool proofing and simplification of the video related software wouldn’t go amiss. If/when, for example, Archos were/is able to achieve seamless electronic programme guide (EPG) compatability between its kit and most platforms (Sky, Canal + and so on) it would be a bound in the right direction. And a large capacity flash drive (technology and pricing permitting) wouldn’t be bad either.

Until then, and in keeping with the times, consumption of and not investment in Archos is this writer's limit.

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How was the 16th century English navy able to resist invasion and domination by Spain, an empire with at least ten times the money and resources? Navies are vastly expensive to maintain at the ready, even today.

The answer was by consistent long-term investment in logistics and support structure: yards, dry-docks (an English innovation), victualling, communication etc. A desperately poor Elizabethan England was the first European power to develop (by necessity) these systems and reached the point where her fleet could be mobilised within 3 weeks. It couldn't stay out long, but it didn't have to. Spain, despite its wealth, required a 3-month bubble of disorganised chaos to leave port - if it was lucky.

To survive the English naval structure had to maintain its "fundamentals" whereas the Spanish could float along pretty much alright (or so it seemed for they were in fact in serious hock) on the back of the easy rape of gold and silver from the New World. In other words, the English stuck to the bauche - old French for job - whilst the Spanish by comparison débauched. History has generally shown sticking to the fundamentals to be a sounder (though less short-term fun) method. The sun never sets etc etc.

As I struggle to return from my own holiday débauche my jaw is even slacker than usual watching the quantity of monies at work for no useful "fundamental" purpose. There is a gold and silver rape of sorts going on in the sucking of equity out of the markets; punters are trading on rumour; some analysts have become M&A hawkers of the snake-oil variety; over-estimation of the "E" side of PE is frequently at the piss-take level; and many sales forecasts have taken on a progression divorced from capacity or history. To cite but a few signs.

Is it really a feat of intellectually virtuosity to argue that general financial distress will follow current general excesses? Were Kitchin, Kondratieff, Juglar, Kuznets and Minsky (amongst others) all entirely wrong about the existence of business/economic cycles? Is it different this time? Has cheap Asian production definitively throttled price pressure to the extent Central Banks are able to débauche currencies without consequence? Would a 2007 soft landing truly mean an all clear rather than simply be noise on the way to a fuller unwinding?

Perhaps, and interest rates are still historically and ridiculously low. But without doubt the distress-tipping rate point has trended lower also on the coat tails of excessive leverage, speculative interest and marginal deals.

Easier money remains the friend capable of building us a sound fundamental existence. Yet persistently easy money will eventually leave us feeling particularly rough, ragged and débauched - as the port tart the morning after the fleet sails knows.

Of course, this is all wrong right now - bordello buyouts are in full-swing - so enjoy the euphoria and overtrade while the going is good.

And Happy New Year to you too.

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