Pentzer Pays Dividends For Wwp Tiny Subsidiary Has Big Influence On Spokane Utility’S Bottom Line

Pentzer Corp. President Dick Davis loves to compete against three-piece suits.

Typically young, and flashing a master’s of business administration degree, his well-tailored opponents often are out of place in small businesses managed by hands-on, shirt-sleeved owners, he said.

Davis said when he visits a business Pentzer may buy into, he makes a point of showing up in casual clothes.

“You look like a weirdo in a suit and tie,” he said.

Even the owners are sometimes caught off guard, Davis said, but his appearance usually fits right in their comfort zone.

They’re over 50, with a lifetime into businesses that represent the bulk of their net worth. A deal with Pentzer gives them an opportunity to get some cash out of the business by selling a majority interest, retain operating control, with the potential for another payday when the business is resold.

Davis said linking the objectives of Pentzer and owners usually gives the subsidiary of Washington Water Power Co. an edge over other bidders for a business which may offer more money but not continued managerial independence.

The most recent example was Universal Showcase Ltd., a Toronto-based maker of fixtures for retailers like Nordstrom.

Two publicly traded companies offered more money for Universal, Davis said, but the owner knew that accepting either of those bids would be the end of business as usual.

“They’re not corporate types,” he said.

Davis said would-be partners are given the names of other owners who have sold to Pentzer as references. Often, he added, those partners tip Pentzer off to potential buyout candidates.

Universal was brought to the company’s attention by the owner of Proco Wood Products Inc., another store-fixture company.

More typically, Davis said, the purchase process starts with a name submitted by one of 2,300 business brokers around the country with whom Pentzer works.

Those contacts dumped 4,800 businesses into Pentzer’s data base, of which about 500 showed promise.

Site visits were made to about two dozen. Three were purchased.

Meanwhile, other businesses were sold off.

Profits from such transactions, as well as ongoing operations, have enabled Pentzer to contribute as much as 29 percent to WWP earnings per share. Assets have doubled to $240 million.

With its latest acquisitions, Pentzer owns 14 companies, most clustered in either the Consumer Product Promotion Group or Store Fixture Group. One company manufactures electronic and mechanical components in California. Another provides credit reports to banks and other financial institutions from offices in Spokane, Bellevue, Boise and Portland.

Together, they employ 1,725.

Pentzer itself employs just 10 in offices in the Lincoln Building.

Davis said the company looks for businesses with less than $5 million a year in operating income. Most benchmarks suggest they can be acquired for a multiple of four or five times income.

By providing additional capital, Pentzer hopes to grow those businesses to around $10 million in income, Davis said.

At that level, the sales multiple can also double, to nine or 10 times income.

Davis said the markup is higher because there are so many other bidders when a company reaches that threshold.

“I can’t buy at that level,” he said. “I’m in another ballgame.”

But he is happy to sell, a responsibility he hands over to a broker based in New England.

In the most recent sale, completed in February, Systran Financial Services Corp. was sold to Textron Financial Corp.

Davis said Pentzer realized an after-tax gain on the deal, equal to a 40 percent annual return on investment since the company bought Systran in 1992.

He said Systran’s growth, fueled by a $40 million line of credit, attracted multiple buyers.

Pentzer has never sold a company over the objection of the manager, Davis said, adding that conflict should not arise if the parent and subsidiary have kept their economic interests aligned.

In at least one deal, he noted, the former owner was able to retain a minority interest when Pentzer sold.

Besides capital, Pentzer also helps with information. Grouping companies allows managers to share resources and leads that can lead to new customers, Davis said.

But the approach is very much hands off, he added. Too much pressure and the minority partner may just thumb his nose.

That same independence has worked well for Pentzer, Davis said. Although the company shares some board members with WWP, the subsidiary has been free of the meddling that has doomed efforts by other utilities to diversify their income streams, he said.

Pentzer was once grounded in the energy and telecommunications businesses, where Davis had experience as a former vice president of US West Communications.

A few years after he left former Gov. Booth Gardner’s office to take over Pentzer in 1990, he and Paul Redmond, who chairs both boards, revisited Pentzer’s operations and agreed changes were in order.

Pentzer shed the energy and telecommunications businesses, and moved into others based on hard assets.

Davis said his board would like to take on bigger deals than Pentzer has in the past. Although he favors restraint, he said the deals done so far this year already exceed the value of all those completed in 1997.

The company has the cash to do more, and officials are looking at five possibilities, he said.

But Davis said he refuses to chase overpriced companies being dumped on the market.

“I wouldn’t put my own money into these deals,” he said.