Strategic Turnaround Equity Partners, LP

Transcription

Strategic Turnaround
Equity Partners, L.P.
Strategic Turnaround Equity Partners
(STEP QP Fund), L.P.
Strategic Turnaround Master
Partnership, Ltd. (Cayman)
Galloway Capital Management, LLC
Fund Manager and Advisor
720 Fifth Avenue, 10th Floor
New York, NY 10019
Contact Information:
Bruce Galloway (212) 247-1339, [email protected]
Gary Herman (212) 247-0581, [email protected]
Jennifer Hutter (212) 247-1468, [email protected]
Bill Bratton (212) 247-8341, [email protected]
A Note About Forward-Looking Statements
This presentation of the Strategic Turnaround Equity Partners, LP, Strategic Turnaround Equity
Partners (STEP QP Fund), LP, and Strategic Turnaround Master Partnership, Ltd. (“STEP” or the
“Funds”) contains forward-looking statements made pursuant to the safe harbor provisions of the
of the Private Securities Litigation Reform Act of 1995, including statements concerning future
events and the Fund’s operations, performance and financial condition; and other matters. Words
such as “expects,” “intends,” “plans,” “believes,” “anticipates,” “estimates,” and variations of such
words and similar expressions are intended to identify forward-looking statements. These
statements are based on our current expectations, assumptions and estimates and are inherently
subject to significant uncertainties, risks and contingencies, many of which are beyond the control
of the Fund, the management company and the general partner of the Fund. Actual results may
differ materially from those expressed or implied by such forward-looking statements. The Fund
expressly disclaims any obligations or undertaking to release any updates or revisions to any
statements contained in this presentation to reflect any change in our expectations with respect
thereto or any change in events, conditions or circumstances on which any statement is based.
For important explanatory information on all performance returns, statistics
and ratios mentioned in this presentation, particularly where you see ( * )
indicated, please refer to the final page “Important Footnotes and Disclaimers.”
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Overview
Galloway Capital Management, LLC (“Galloway”) manages
and invests the capital of Strategic Turnaround Equity
Partners, L.P., Strategic Turnaround Equity Partners (STEP
QP Fund), LP, Strategic Turnaround Master Partnership,
Ltd., (“STEP” or the Funds) and the personal capital of
Bruce Galloway in turnaround opportunities that are
expected to generate superior returns.
Galloway’s target investments are in fundamentally sound
businesses that it believes are currently undervalued due to
a combination of business, market and financial challenges.
We attempt to recognize and invest in turnaround
opportunities before they are discovered by the general
investment community.
Since 1989 Bruce Galloway has managed proprietary
accounts in styles similar to that of the STEP Funds.
Mr. Galloway is the largest investor in the STEP Funds.
Equity Partners, L.P.
since November 2005
Equity Partners (STEP
QP Fund), L.P.
since June 2006
Master Partnership, Ltd.
since June 2006
Galloway Capital Management, LLC takes a value approach to investing in the
U.S. equity market and targets businesses that it believes currently undervalued
due to a combination of business, market and financial challenges. With a
particular focus on turnaround opportunities, Galloway can be activist in order to
help realize value.
Inception to Date Return:
38.23% net *
Year to Date Return:
43.91% net *
*
These numbers are net of all fees and expenses. Please note that these return estimates are un-audited and subject to review.
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Investment Process
Target Universe
STEP
Undervalued Companies
Financial Criteria Screening
Publicly Traded Equity
Securities
Technical Criteria Screening
Companies often trading at
significant discounts to their all
time trading highs
Typical Business Characteristics:
Understandable business
model
In transition or turn
around stage
Room for Significant
Growth
Financial Review and Ranking
Portfolio Analysis and Construction
Statistical Analysis and Simulation
Stock Selection and Trading
Portfolio Review and Risk
Management
Portfolio
Characteristics
Approximately 90% of the
portfolio is net long
Typical holding period ranges
from 12-36 months
30% of the portfolio can be
invested positions where
Galloway is an “activist:”
Letters to Management
13G and 13D Filings
Board positions
Strategic Improvements
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Monthly Actual Performance
2005-2006 Monthly Returns*
STEP Fund Net Performance since November 1, 2005
STEP
2006
2005
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
YTD
ITD
21.29%
-0.07%
7.15%
3.81%
-5.40%
0.16%
-5.75%
0.72%
0.49%
10.72%
3.21%
3.52%
43.91%
38.23%
-0.21%
-3.74%
-3.94%
-3.94%
* These numbers are net of all fees and expenses. Please note that these return estimates are un-audited and subject to
review.
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Controlling Risk through Industry & Portfolio
Diversification, and Price Protection
Industry Diversification, Five Primary Sectors:

Consumer Retail

Technology

Healthcare

Energy Services

Business Services
Portfolio Diversification:

Position Concentration

Turnaround Maturity
Price Protection:

The goal is to purchase at prices that provide a “high margin of safety”
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Portfolio Construction and
Risk Management

Target Portfolio Size
Approximately 40 positions
No position greater than 7% of assets (at cost)

Pricing Benchmarks
Determination of trading entry & exit points

Limited Leverage
Maximum 20% of portfolio value

Relative Price Levels
Price comparisons to Peers

Price Trend Analysis
Evaluation of price history

Volatility Analysis
Statistical simulations
Sampling techniques to identify risk reward
parameters

Industry Diversification
Consumer Retail
Technology
Healthcare
Energy Services
Business Services

Highly Experienced Portfolio Manager
18+ years experience
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Companies in Which We Have Invested
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Transaction: Radiologix, Inc.
Radnet, Inc. (OTCBB: RDNT), formerly Radiologix, Inc. is a leading national producer of diagnostic
imaging services through its ownership and operation of free-standing outpatient diagnostic imaging
conters. In 2005 Mr. Galloway identified the company as an undervalued opportunity, with a good balance
sheet, trading at a discount to its peers, with good upside potential.
In the Fall 2005, STEP and its affiliates filed a 13D. By the winter 2006 and due to changes in federal
healthcare reimbursements, the stock plunged. STEP and its affiliiates increased their position and
demanded that the Company explore strategic options including two proposed nominees to the Company’s
Board of Directors. In the second quarter 2006, the company announced its planned merger with
Primedex Health Systems, Inc. The merged company, Radnet, Inc., is now the largest operator of freestanding imaging facilities in the United States.
Source: LOS ANGELES--(BUSINESS WIRE)--November 15, 2006
Primedex Health Systems, Inc. (OTCBB:PMDX) today announced the completion of its previously announced
acquisition of Radiologix, Inc.
Source: DALLAS, Aug. 8 /PRNewswire-FirstCall/
On July 6, 2006, the Company entered into a Merger Agreement with Primedex Health Systems, Inc. in which a
wholly owned subsidiary of Primedex will merge with and into Radiologix. The transaction will create the largest
owner and operator of fixed-site diagnostic imaging centers in the United States, with 131 locations.
Since our involvement in the stock, the market capitalization of the company has increased from a low of
approximately $31 million to a high of approximately $188 million (on 9/26/06).
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Investment: Relm Wireless Corporation
Relm Wireless Corporation (AMEX: RWC) designs and manufactures wireless communications,
products sold to the land, mobile radio markets, particularly for public safety, government, business and
industrial users.
Mr. Galloway became an investor in the stock in 1999. In April 2003, Fleet Bank withdrew the
company’s credit facility, which caused the stock to drop to $.21/share (an all time low). Mr. Galloway
substantially increased his ownership stake.
The Company obtained a new lending facility (with the assistance of Mr. Galloway), got back on track to
continue the design and manufacture of its new proprietary communication equipment, and received
long awaited contracts from the government.
The stock reached a new high of $11.70 on February 7, 2006.
Mr. Galloway generated a return in excess of 10x on this position.
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Transaction: Command Security Corporation
Command Security Corporation (OTCBB: CMMD) is a U.S. provider of security guard and airport services.
Mr. Galloway began accumulating the stock in the Fall 2001 at $.60/share, after the terrorist attacks of
September 11th. In 2002 and 2003, Mr. Galloway met with management to recommend strategic
alternatives and offered to provide additional financing for the company to expand and execute its business
plan. Mr. Galloway was rebuffed by management.
In the Spring 2004, Mr. Galloway led an investor group to purchase a control block of stock in the Company
at an average price of $1.00 per share with the warrants exercisable at $1.25. Several months and legal
actions later, Mr. Galloway was successful in nominating and electing a new board of directors and replacing
management. The actions of Mr. Galloway have directly contributed to an increase in shareholder value,
improvement of the Company’s balance sheet, and a company poised for growth. Mr. Galloway is the nonexecutive Chairman of Command.
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Transaction: Monarch Dental Corporation
BrightNow! and Monarch to Combine:
Bright Now! is a privately held dental practice management company
that provides business support services to 52 dental offices in
California, Oregon and Washington. It employs about 950 people.
Bright Now!'s majority shareholder is Gryphon Investors, a middle
market private equity firm with about $500 million of capital under
management.
Monarch provides business support services to 152 dental offices
serving 17 markets in 13 states, including seven locations in San
Antonio. Monarch and its affiliated dentists have an annual revenue
of about $185 million and employ 2,200 people.
-- San Antonio Business Journal, December 2, 2002
Press Summaries:
• Monarch Dental to Be Acquired ABC News 27 Nov 2002 DALLAS (Reuters) Monarch
Dental Corp. Which provides business support
services to dental offices, said Wednesday it is.
• Purchased shares in 2001 and 2002 at an
average cost of $2.25/share.
Bright Now! boosts bid for Monarch Dental Dec. 11, 2002
Bright Now! Dental Inc. has raised its offer to buy Dallas-based
Monarch Dental Corp. to $5.75 a share in cash from its previous
offer of $5 a share. The offer amounts to $12.65 million, a 26
percent premium over Monarch's closing price of $4.55 a share
Tuesday. Shares of Monarch rose 62 cents to close at $5.17
Wednesday.
Monarch said two of its largest shareholders – Bruce Galloway
and Europa International Inc., an affiliate of Fred Knoll – have
agreed to vote in favor of Bright Now's merger with Monarch in
exchange for the higher offer.
• Initial going private offer of $3.25/share.
• Mr. Galloway opposes this transaction and
offers alternatives in various 13D filings with the
SEC.
• Revised going private offer of $5.00/share.
• Mr. Galloway supports a further and final revised
going private transaction at $5.75/share.
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Transaction: Seitel, Inc.
Seitel, Inc. (OTCBB: SELA) markets and sells 3D seismic imaging information to oil and gas companies.
When current management took over in June 2002, they found a company that had defaulted on its debts
and had other corporate problems. Mr. Galloway identified an undervalued opportunity for strong upside
potential. In June 2003, Seitel’s creditors filed an Involuntary Chapter 11 proceeding. Shortly thereafter,
Berkshire Hathaway purchased the defaulted bonds, and offered the common shareholders $10,000,000
or $.40/share, even though the company had a book value of over $4.00/share.
Mr. Galloway and his team retained counsel and successfully petitioned the bankruptcy court for the
appointment of an Equity Committee. The Committee, with Mr. Galloway as its Chairman, successfully
challenged the value placed on Seitel by Berkshire Hathaway and offered its own refinancing solution. The
plan provided for full payment of $250 million (approx.) on the bonds, plus accrued interest and expenses,
and equity retained a significant position in the restructured company with board representation.
HOUSTON, March 18, 2004 - Seitel, Inc. ("Seitel" or the "Company") today announced that the United States Bankruptcy Court, District
of Delaware, has confirmed Seitel’s Chapter 11 plan of reorganization. Bruce Galloway, managing partner of Galloway Capital
Management and chairman of the Official Committee of Equity Security Holders, said, “We believe this plan is in the best interests of
the company’s constituents and improves the viability of the company.”
It was noted that, “This plan pays off creditors while at the same time taking care of shareholders, and all litigation in closed. "This
recovery is a testament to the skill and patience of the parties involved" said Janice Grubin, a bankruptcy lawyer with Wormser,
Kiely, Galef & Jacobs in New York.
The market capitalization of the company increased from $10 million (approx.) to a high of $775 million (on
5/10/06). Mr. Galloway generated a return in excess of 15x on this position.
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13-D, 13-G and Form 4 Filings
Activist Roles
Present
Past
Command Security Corporation
United American Healthcare, Inc.
Coast Dental, Inc.
Monarch Dental, Inc.
National Holdings Corp.
Monarch Dental, Inc.
Seitel, Inc.
Odimo, Inc.
Relm Wireless, Inc.
Coast Dental, Inc.
Miracor Diagnostics, Inc.
Datametrics Corporation
Radiologix, Inc.
Cognitronics, Inc.
Seitel, Inc.
Curative Health Services, Inc.
Command Security Corporation
Forward Industries, Inc.
VantageMed Corporation
Curative Health Services, Inc.
Optio Software, Inc.
Broadcaster, Inc.
Digital Creative Development Corporation
Shells Seafood Restaurants, Inc.
Fibernet Telecom Group, Inc.
Stonepath Group, Inc.
Metro One Telecommunicatons, Inc.
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Summary of Key Investment Terms
General Partner (GP):
GP’s Initial Investment:
Minimum Partnership Investment:
Lock-up:
Redemption (Offshore only) fees:
Withdrawal Provision:
Annual Management Fees:
GP Performance Incentive:
High Water Mark:
Investment Advisor:
Administrator:
Prime Broker:
Legal Counsel (U.S.):
Legal Counsel (Cayman):
Auditors:
$3,000,000
$500,000
Two years
Year 1: 5%, Year 2: 3%
Quarterly
2.0%
20% gains in excess of High Water Mark
Yes (Minimum Established Investment Principal Level)
GCM Administrative Services, LLC
BISYS-RK Alternative Investment Services, Inc.
Goldman Sachs Execution & Clearing, L.P
LeBoeuf, Lamb, Greene & MacRae, LLP
Stuarts Walker Hersant
Rothstein, Kass & Co., LLP
This is only a summary of key investment terms. Any prospective investor should refer to
STEP’s Private Placement Memorandum and Partnership Agreement for all relevant terms.
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STEP SUMMARY
Outstanding historical investment performance
Significant Portfolio Manager Investment
Experience in various market cycles
Value creation through purchasing undervalued situations
Repeatable investment process
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Bruce Galloway
Mr. Galloway is a Managing Member of the General Partner.
Mr. Galloway has over 20 years of experience investing in turnaround
companies. In 1991, Mr. Galloway pioneered the fundamental concepts
behind his proprietary STEP program as a Senior Vice President at
Oppenheimer & Co. Mr. Galloway brought STEP to Burnham Securities Inc.,
where he established and managed the Galloway Division from 1993 to 2005
Prior to Oppenheimer, Mr. Galloway held various positions in Institutional
Equity Research and Sales with Rausher Pierce & Refsnes, Inc., Morgan
Keegan & Co., L.F. Rothschild & Co., and Prudential Insurance.
He holds a B.A. in Economics from Hobart College and an MBA in Finance
from New York University’s Stern Graduate School of Business. Mr. Galloway
is Chairman of Broadcaster, Inc. and Command Security Corporation, as well
as a director of Forward Industries, Inc.
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Gary Herman
Mr. Herman has been a Managing Member of the General Partner since 2002.
From 1997 to 2002, Mr. Herman was an Associate Managing Director of the
Galloway Division at Burnham Securities Inc. Mr. Herman has extensive
experience investing in, structuring, and managing corporate turnarounds.
Prior to joining Burnham, Mr. Herman was the managing partner of Kingshill
Group, Inc., a merchant banking and financial firm with offices in New York and
Tokyo. He was instrumental in originating and executing numerous domestic and
cross-border transactions.
He has a B.S. from the State University of New York at Albany. Mr. Herman is
Chairman of Digital Creative Development Corp and DataMetrics Corporation,
as well as a Director of Shells Seafood Restaurants, Inc., and a former director of
the NYC Industrial Development Agency to which he was appointed by former
New York City Mayor Rudolph Giuliani. He has sat on the boards of many
private and public companies, and has been involved in turnarounds of
companies at all levels including management, advisory, corporate finance and
acquisitions.
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Jennifer Hutter
Ms. Hutter joined Galloway Capital Management in January 2006.
From Fall 2004 to December 2005 Ms. Hutter consulted in trade support roles at various Wall Street
firms including Credit Suisse First Boston’s Prime Services Trading.
Prior to this Ms. Hutter was employed in Securitized Product areas at Piper Jaffray and Deutsche
Bank. At Piper Jaffray, Ms. Hutter provided trade support to MBS Traders while creating and
implementing a system which reconciled inventory profit and loss as well as tracked MBS valuation
and hedge positions. At Deutsche Bank, Ms. Hutter was promoted to an Institutional Sales role after
having backed several Senior ABS, MBS and CMBS Salespersons.
Ms. Hutter has her Bachelors degree in Finance/Management from the University of Arkansas and is
Series 7 and 63 licensed.
William Bratton
Mr. Bratton works in a Sales and Marketing capacity at Galloway Capital Management.
From July 2000 to May 2004 Mr. Bratton worked for Merrill Lynch's Fund of Funds Group supporting
the needs of their Institutional and High Net Worth clients in the US and Asia. He was also
instrumental in managing the currency risk for their offshore products, totaling some 2bl in currency
exposure.
Prior to Merrill Lynch he held various consulting and analytical roles in Asset Management with
Morgan Stanley, Lynch and Mayer and Vision Capital Partners.
He has a B.S. in Economics from The Pennsylvania State University.
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Important Footnotes and Disclaimers
Disclaimer: This summary is not an offer to sell or solicitation to buy any
securities. No offers to sell, solicitations to purchase, or sales of any securities will
be made unless and until such time as a prospective purchaser: (i) receives
complete and proper documentation and subscription information, including a copy
of the Private Placement Memorandum and Partnership Agreement and (ii)
demonstrates compliance with applicable investor qualification standards. An
indication of interest made by a prospective purchaser constitutes no obligation of
any kind. This document contains forward-looking statements that are the
projections of management and may not be relied upon in any way and there are no
guarantees of return to the investor made herein. The Partnership will not be
registered under the Investment Company Act of 1940, as amended, or the
Securities Act of 1933, as amended.
Monthly STEP Fund return numbers are net of all fees and expenses. Please note
that these return estimates are un-audited and subject to review.
Historical performance is not necessarily indicative of future returns. An investor in
the STEP Fund must be prepared to lose their entire investment.
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