Mergers and acquisitions may be financial transactions, but don’t tell that to the people on the front lines implementing the deals. They face a range of people problems, cultural and legal issues, administrative and other decisions that are as integral to the success of the deal as the numbers. Below are some first person accounts from those who have been instrumental in planning, executing or managing M & A; deals. They will all likely tell you that when it comes to M & A;, one plus one does not always equal two. Shelly Garcia <!– Michael E. Adler –> Michael E. Adler Michael E. Adler President, Managing Director Informa Research Services Informa Research Services, a Calabasas company that provides a variety of competitive intelligence products and services, has been both a buyer and a seller. After an unsuccessful acquisition, the company was acquired by London-based Informa Group, which in 2004 merged with Taylor & Francis Group. In the U.S., Informa has in recent years acquired a number of companies, including Market Trends Inc. and Barry Leeds & Associates. The company we bought that turned into a disaster, was making one percent margin and they thought anything over one percent was greed. We are running a business that makes 23 percent, 24 percent margin, so our na & #271;ve thought process was we can take them over and we can change that and make a lot of money. We bought it with the idea that the owner would stay on. Well, six months later, the owner said to us, ‘You bought my house, you’re changing the drapes and curtains, but I still live here.’ He had imbedded that culture so much into the people that you couldn’t change it. The only recourse was to have him exit the people but we still had a lot of people who just thought more than one percent was greed. And sure enough, our first full year with them, we did $9 million in revenue and $90,000 in profit. They sucked all the money out of everything else we were doing and they hit that one percent goal. Kevin Coop President Interthinx, Agoura Hills This summer, Inter- thinx, a provider of automated fraud protection, compliance and decision support tools for the mortgage industry, based in Agoura Hills, through its parent company ISO, acquired Domus System, an electronic data reporting company in the real estate industry. The acquisition was just one in an aggressive strategy that is yielding an average of one acquisition a month designed to speed an expanded offering of data products to market. In my experience with having to integrate between 15 and 20 companies, you always have challenges related to the entrepreneur that doesn’t like being part of the organization. It’s very difficult to integrate those folks. You’re serving two masters. All the secret sauce that’s made the business, you don’t want to destroy that, but at the same time you have to exert some adult supervision. Ultimately, it will solve itself. Most people think they are more valuable to the organization than they are. You blend the team together, people jockey for position, there’s some infighting, morale suffers. You address it and people eventually will leave. Judi Irving President, CEO HemaCare Corp. HemaCare, a 28-year-old provider of blood products and services to the healthcare industry, in August acquired Teragenix Corp., a $5 million provider of human biological samples and other products and services for the biotech and pharmaceutical industries, creating HemaCare BioScience Inc. The purchase, for about $4.8 million in cash, stock, notes and assumed debt, was designed to expand Woodland Hills-based HemaCare’s business into the research arena, a new sector for the company. The strategy was to retain the former Teragenix management and, at least for the foreseeable future, operate the company as a separate division. We worked with Duff and Phelps to have them assist us with identifying potential targets. It is real important to get someone who understands your business. You save a lot of time. And I think what’s also important is a lot of face-to-face time with the target and with different levels of management. It’s multiple levels (of understanding). One is to understand completely what kind of business you are acquiring, but also it starts the transition even before you have made the acquisition. You know the individuals better and there is more of a working feel. You establish your relationships early on in the process. Mark Powers Senior VP CallSource Earlier this year, Westlake Village-based CallSource, a provider of online call-tracking and recording products that allow companies to measure their advertising investments, acquired Markette Systems, a three-year-old firm that provides similar products with a focus on automotive and marine retailers. The company has primarily grown organically, but considers acquisitions to complement that strategy. Let’s say what you’re delivering to the market is very similar to what you’re buying, you have to migrate either yours or their customers. You have to have a good migration plan. A lot of times it doesn’t work cleanly and it’s a very good way to lose customers. When you’re doing a transaction, it’s hard to uncover every single piece. The devil is in the details. You don’t know until you are doing it. You have to have a team that, when these issues arise, they can fix it and make the integration as seamless as possible. I think we just keep trying to get better and better at the preparation and the integration process. But if you find something good, let me know. J.T. Cecchini Director of Planning and Development J.D. Power and Associates Not long after being acquired itself by McGraw-Hill Cos., J.D. Power and Associates, the Westlake Village based marketing and information services firm, acquired Automotive Resources Asia in China, a similar company specializing in Asia’s car markets. The acquisition was designed to augment an existing operation Power had in place in China and followed a series of more informal relationships Power had maintained with other research companies in the region. China was a key area of interest where an acquisition made sense to increase the speed (of growth there). Because the country is growing so fast and a lot of these agencies are young, there’s not the history to fall back on, so things change quickly, and that applies not only to the economy and the markets, but also the governmental and regulatory agencies. What that means is you have to spend much more time on your legal strategy than you would in other domestic deals. One of the main concerns we have is protecting our intellectual property rights. We have a lot of processes and methodologies we’ve developed and a lot of our approaches for modeling for customer satisfaction. That’s a big concern we have in an emerging market. How do you protect your intellectual property and where are the mechanisms in place to protect you? Neal Vitale CEO, Co-Founder 1105 Media Inc. 1105 Media Inc., a business-to-business publishing company, was formed earlier this year when a partnership including private equity firms Nautic Partners LLC, Alta Communications and publishing veteran Neal Vitale acquired 101communications Inc. in Chatsworth and Stevens Publishing in Dallas. The consolidated company, now with offices across the country, has offerings in print and online magazines, journals and newsletters as well as seminars, conferences and trade shows covering the information technology, industrial health, safety and compliance, environmental and healthcare industries. We collectively and separately have been looking at dozens of media opportunities. I don’t think there’s any great wisdom. You look for cost savings on one hand where you have redundancies so you can make more money by putting them together. On the revenue side, you look to see where businesses may not have been invested in adequately or you see business opportunities that may not have been capitalized on by prior management. These deals took between six and nine months to close. What took us so long was to find the assets we wanted at the price we were comfortable with. You just have to keep balancing those issues. If you think a business is worth X and the marketplace thinks it’s worth more than that, you’re not going to be successful. Mark Louchheim President Bobrick Washroom Equipment Inc. Since 2004, Bobrick Washroom Equipment Inc. has made two acquisitions, buying the public baby-changing station maker Koala Kare Products and a division of Masco Gamco, which, like Bobrick, produces accessories for the non-residential building industry. But the wheels were put in motion far earlier when, in 2001, the company first set about to develop a strategy to expand. We were looking for a way to grow the company if we could do it in a way that would strengthen our company as well as add value. We didn’t go out and say we wanted to buy a company. We have a very active internal management program. We had management we wanted to grow and we wanted to create opportunities for them. The first thing we did is develop a criteria back in 2001. The company had to be in an industry consistent with our mission. Then we had certain things about the market in terms of how concentrated the company was within its particular industry. We wanted capable management; we had specifics about the size of the company and what the impact was going to be on our balance sheet by doing an acquisition. Then in 2002 and 2003 we started to put together a due diligence transition team. We explored what outside consultants we would use and potential investment bankers. Then in 2003 we started to develop a targeted list of companies. When we acquired Masco Gamco, the process was already set up. They were one of the companies on our original list. We have a tendency to talk with the companies where they know us.

The side effects of a little-known bill President Bush signed this month meant to curb online gambling is being felt all the way in the Valley. The Unlawful Internet Gambling Enforcement Act of 2006, passed by Congress in September, makes it illegal for credit card companies and banks in the U.S. to handle electronic money transactions for gaming websites. While it was designed to prevent kids from gambling online and help solidify previous wire transfer rules, the new law could be devastating for companies like Camarillo-based Electronic Clearing House Inc., which provides payment-processing services for merchants, banks and collections agencies. About 10 percent of the company’s business is generated through a service for Internet merchants that allows customers to have online payment accounts a sort of digital wallet. Problem is, those accounts could theoretically be used on gambling sites, which means they’re now prohibited under the new law. <!– Not so sweet: Cheesecake sales dip. –> Not so sweet: Cheesecake sales dip. Federal regulators have 270 days to determine how the rules will be regulated, but Electronic Clearing isn’t waiting around to see what decision will be made, said Chairman and CEO Jody Barry. “We’re all getting out before the 270 days,” he said, comparing the regulation to prohibition. “It’s just going to be onerous.” News of the law sent stock plummeting for Electronic Clearing House Inc., which until recently was on an upward swing its year-to-date earnings as of this month were up 40.8 percent and it reported revenue of $19.9 million in the second quarter ended June 30. Those numbers will almost certainly change into fiscal 2007 because of the bill, Barry said. “It is definitely coming right off the top,” he said. “It has a significant impact to the bottom line.” Curiously, though, there is a silver lining: the law does not apply to horseracing sites, which are protected as part of the Interstate Horseracing Act of 1978. Electronic Clearing House offers some products for horseracing, which makes Barry optimistic the company might see some up tick in coming months. “We may benefit by seeing more activity. Those gamers have to go somewhere,” he said. It’s also good news for Woodland Hills-based horseracing website owner Youbet.com Inc. CEO Charles F. Champion in a letter to investors Oct. 13 said the horseracing industry has long been critical off offshore gambling sites that allow overseas bets on horse races without a cent going to equestrians or tracks. The new law changes that, and will likely help business, he said. “It sets a strong foundation and is consistent with Youbet initiatives to set high standards for integrity and transparency in all facets of horseracing,” he said. “Online wagering services are to this generation what simulcasting and off-track-betting were to the previous generation.” Still, Barry said he has fundamental problems with the legislation. “The idea that this law tries to eliminate people from giving instructions over the Internet as to how their money will be used in another country seems a little overreaching to me,” he said. “I was definitely surprised.” In Other Youbet.com News Youbet.com had two other reasons to celebrate this month. The company acquired privately held television production company Bruen Productions International Inc., headquartered in Colorado for $162,000 and assumed $174,000 in Bruen debt. Then, the company took the No. 3 position in the list of fastest-growing Southern California tech firms by Deloitte and Touche USA. The company reported a 1,305 percent growth from 2001 to 2006. HealthNet Improves The Woodland Hills healthcare provider HealthNet said its latest quarter earnings would likely beat Wall Street expectations. Third quarter earnings are expected to tally about $91 million, or $0.84 per diluted share, the company said. The company had predicted it would make about $0.82; analysts put it closer to $0.83. Meantime, HealthNet’s board of directors voted to restart its stock repurchasing program, under which the company receives $235 million more than the earlier program that ended two years ago. For the Record IHOP Corp., the Glendale purveyor of Rooty Tooty Fresh and Fruity and Pigs in Blankets, reported that same-store sales or sales in stores open for at least a year increased 1.3 percent for the third quarter ending Sept. 13. Sales for the first three quarters were up 3.1 percent. Same-store sales didn’t perform as well at the The Cheesecake Factory Inc., which reported a 1.6 percent drop during the third quarter. Sales grew 11 percent to $325 million for the quarter, the company reported. Woodland Hills-based 21st Insurance Group has started offering auto insurance services to drivers in the Garden State. New Jersey is the 13th state the company serves. Earlier this year, 21st entered the Florida, Georgia and Pennsylvania markets. Staff Reporter Chris Coates can be reached at (818) 316-3124 or at [email protected] .

Following the corporate scandals of the last five years, there has been renewed attention to the issue of fraud. Both public and private companies recognize that fraud can undermine, or even destroy trust in their business, often with catastrophic financial results. According to a 2006 report by the Association of Certified Fraud Examiners, anonymous tips are the most effective means of detecting fraud. Since the Sarbanes-Oxley (SOX) Act was passed in 2002, audit committees of public companies are required to establish procedures for gathering and processing complaint information, and they must guarantee confidentiality and protection to employee whistleblowers. Because smaller, often private, companies suffer from a higher incidence of fraud than larger companies, many of them have adopted similar policies, either using audit committees or an independent third party. But establishing a whistleblower hotline is only a first step. Many companies are struggling to handle the myriad complaints that come through the door once the gates are open. Two challenges in particular have beset audit committees and other groups responsible for examining and addressing whistleblower complaints. The first is balancing the rights of the whistleblower and accused party to remain anonymous against the needs of investors or others to be informed. The second is screening the complaints that come in and separating those that are likely to have a financial impact from those that are non-material in nature. The solution to these challenges is to develop a comprehensive process for handling whistleblower complaints. At international accounting firm Grant Thornton LLP, we utilize an approach with our clients entitled the Model Accounting Complaint-Handling Process, or MACH ProcessSM, for dealing with whistleblower complaints that have the potential to uncover financial fraud. The MACH Process consists of six steps: Receive: Establish a system for logging in complaints in a consistent manner to ensure that every complaint, no matter how small, is addressed. Follow-up with more in-depth interviews using trained professionals to determine which complaints have merit and which are relevant to financial reporting. The latter must be referred to the audit committee in public companies. Analyze: Determine the best course of action by classifying complaints based on sensitivity (potential to harm the company) and materiality (potential impact on the financial statements). For example, a sensitive matter might be one involving board members or senior executives. A material matter might be an incentive structure that has resulted in false earnings reports. Investigate: Assign team members based on sensitivity and materiality factors. For example, human resources should be involved in any sensitive complaints. The external auditor will need to be apprised of the investigation for any complaint that is material to the financial statements, but they cannot be part of the investigation team due to independence considerations. Often the services of external consultants, such as forensic investigators or crisis communications specialists, are needed. If the company already has relationships with these professionals, it will be better prepared to quickly move forward with the investigation. Resolve: Develop a plan to address the complaint. The audit committee or other independent body should approve the plan and monitor its implementation. Report: The communications phase of the complaint-handling process can be very delicate. Whistleblowers will expect timely reports, while innocent suspects will want their absolution to be announced promptly. Determining what information to share with whom may require the assistance of legal counsel, public relations professionals and others to avoid liability for incomplete or inaccurate disclosures. A system for capturing experiences from handling whistleblower complaints can yield best practices for future decision making. Retain: Documents produced during the complaint-handling process represent evidence that should be preserved, protected and retained in accordance with each company’s document retention policies. Care must be taken to restrict access to hard-copy documents and to store and secure electronic data. This material also serves as a record of the audit committee’s compliance with any regulatory requirements and provides evidence that the organization is successfully addressing accounting, internal control and auditing risks. For the complaint-handling process, as for all processes, the “devil is in the details.” On the one hand, the system must be used in order to be effective,a communications challenge in and of itself. Employees and outside parties must understand how to file complaints, what venues exist and what level of confidentiality they will be afforded. On the other hand, the audit committee must develop procedures for handling the overwhelming number of complaints that often surface once people realize the available avenues for airing grievances. Ultimately, by establishing an effective complaint-handling process, the organization will be able to identify and deal with those cases of fraud that have the greatest potential to harm the company’s reputation and bottom line. Jim Pulsipher is the practice leader for Grant Thornton LLP’s financial institutions group in the West region and the Partner-in-Charge of the firm’s Woodland Hills office. He is a Certified Public Accountant in the State of California with more than 30 years of experience.

Testimony began Oct. 16 in the trial of a lawsuit alleging a power grab by executives and board members of Precision Dynamics Inc. against Walter Mosher, a co-founder of the company. Mosher was sworn in to testify Oct. 18 in the courtroom of Los Angeles Superior Court Judge Teresa Sanchez-Gordon. The case will resume Nov. 14. Mosher, 72, filed the lawsuit in September against President and Chief Executive Officer Gary E. Hutchinson, Chief Financial Officer Mark Segal, and board members Jonathan G. Lasch, Robert B. Kraemer, and Robert F. Foster alleging a power grab for control of the privately held San Fernando company. The suit seeks to oust Lasch and Foster from the board, find that Segal failed to carry out his duties as inspector of the election of board members, and find that Kraemer and Hutchinson, majority shareholders in the company, failed to hold a shareholders meeting in compliance with state code and breached their fiduciary duty by taking steps to keep Mosher from electing a board member of his choosing at an August shareholders meeting. The suit accuses the defendants of attempting to get around safeguards for Mosher, a minority shareholder, to keep intact the company he created. Precision Dynamics is a leader in designing, manufacturing and distributing identification band systems.

Are San Fernando Valley businesses more or less philanthropically generous than the rest of the city, the country, and the world? The concept of charity is somehow inherently contradictory to the precepts of capitalism. People work as hard as they can, often relegating ethics, honesty, and fair play to the back burner, while avarice and a win-at-any-price attitude prevail. And then they turn around and donate millions to AIDS relief, the homeless or abused, or to hundreds of other worthwhile causes. The passage of time has dimmed our collective memory of the excesses of the Robber Barons Rockefeller, Carnegie, Morgan, and the like. Today we remember their charitable gifts to libraries, universities, and philanthropies. John D. Rockefeller hired one of the founders of the public relations profession, Ivy Lee, who managed Rockefeller’s transformation from demon to donor by among other things having the tycoon giving away dimes to children on the streets of New York. In our own time, we have gone from excoriating the denizens of Silicon Valley (the first time around) for their lack of charitable giving, to admiring the incomparable giving of Bill Gates and many of his compatriots (this time around). Not to be outdone, Warren Buffett has pledged to support the charitable giving of the Gates Foundation with his own multi-million-dollar gift. And the mid-September issue of Fortune touts the philanthropic success President Clinton has achieved by using his charisma, clout and (others’) cash. Looking closer to home, I had always thought we Californians were a generous people. But according to several publications, we’re not even in the top five among of the 50 states in charitable giving. I was equally sanguine about those of us in the Valley. After all, we support MEND, Haven Hills, the Child Development Institute, New Horizons, El Proyecto de Barrio, and a host of other local not-for-profits, not to mention the large national organizations. Most of us could rattle off the names of half a dozen true philanthropists in the Valley’s business community I am privileged to know several of them. But does it stop there? Some of our larger enterprises a bank, a healthcare company, a few others are known for their giving. But can you name many smaller, local firms that have established a reputation for supporting worthwhile causes? Probably not. Big companies for years have used the concept of cause-relating marketing to both sell products and polish their image. “Buy two of our widgets and we’ll donate $10 to your favorite charity;” “Open an account and we’ll send a donation to the West Valley Boys and Girls Club;” or “Shop at our mall stores and we’ll support one of these charities ” (followed by a long list). A challenge Well here’s (to quote Jonathan Swift) a modest proposal: Why don’t all of us who have small and medium-sized businesses take a page from the big guys’ books? In essence, it’s just doing well while doing good. Instead of just having a “sale,” advertise and promote a donation. Instead of telling us that “it’s fun to buy a car” at a certain dealership, give a Valley-based charity $50 for every test drive. Instead of giving us double airline miles for staying at a certain Valley hotel, donate the second set of miles to a charity’s account. It’s easy, it’s good for the Valley, and it’s good business. Andy, if you donate a dollar to a Valley charity, I promise to let you keep cutting my hair until I go entirely bald. Bert, if you give $150 to a Valley not-for-profit for every Jaguar you sell, I promise to buy my next one from you (of course I only buy one every decade or so I still love my XJS). Veronica, if you give $2 for every meal I have at your restaurant, I’ll promise to order my Santa Fe salad at least three times a month for the next year. See, it’s good for them, it’s good for me…and it’s good for the Valley. After all, as he wrote near the end of his life, Benjamin Franklin believed, “I would rather have it said ‘He lived usefully,’ than ‘He died rich.'” May that be said of all of us. “You make a living by what you get, but you make a life by what you give.” Winston Churchill Martin Cooper is Chairman of Cooper Beavers, Inc., marketing and communications. He is the Immediate Past Chairman of VICA, Past President of the Public Relations Society of America-Los Angeles Chapter and of the Encino Chamber of Commerce, and is Vice President of the Los Angeles Quality and Productivity Commission. He can be reached at [email protected].

In April of this year, Final Draft, Inc. and Script magazine hosted an event in Universal City featuring working professional scriptwriters dishing out advice about their craft. Final Draft chief executive Marc Madnick called the Scriptwriters Showcase the “date” before the marriage of his Calabasas-based company and Script’s parent Forum Publishing, headquartered in Maryland. The showcase convinced Madnick and his counterpart at Forum, Shelly Mellott, the two companies could do more together rather than continuing on their own putting out new product for their respective customer bases. “That was the icing on the cake,” Madnick said of the showcase, which is to be an annual event. Final Draft earlier this month acquired all the assets of Forum Publishing, including its flagship publication Script and other services for aspiring and professional scriptwriters. Details of the transaction were not released. Mellott, who continues in her role as editor in chief of Script and takes the additional title of vice president of events and publications, said the acquisition creates a one-stop shop for scriptwriting services, resources, information and feedback. “There’s no one else in the marketplace offering such comprehensive services,” Mellott said. The magazine’s editorial offices will remain in Maryland but changes in the appearance of the publication will be seen as early as January. A redesign means more pages, a gloss-coated cover, more full-page ads and high-end photography. New content features include columns from working writers and development executives, industry news and trends, and guides and tips for success in pitching, selling and management. Expanding its audience With a new owner, Script will be able to realize its full potential and reach a larger audience than it could have on its own, Mellott said, adding that Final Draft also brings to the table a larger marketing and advertising staff. The acquisition also makes Final Draft full owner of the Scriptwriters Showcase event and Take A Meeting, an event in which writers get a one-on-one meeting with industry decision makers. Final Draft also sponsors the annual Big Break scriptwriting contest, and offers ScriptXpert, a service critiquing scripts before they are put on the market. Madnick founded Final Draft in 1991 as he transitioned from production accountant to writer. He and a roommate who was a computer programmer devised the company’s flagship Final Draft software program to simplify required formatting rules. The software is now in its seventh version. Final Draft AV, another company product, assists in writing commercials, industrial films and video games. “I can’t imagine anybody in the business using Final Draft and not being happy with it,” said David Burr, a screenwriter from Burbank. “It’s a big time saver.” Formatting The software automatically formats a page into the industry accepted style, inserting scene numbers, capitalizing slug lines, indenting action and dialogue. “When you write a character’s name and hit enter, the program knows the next thing on the page will be dialogue, so it puts it in the proper format,” said Burr, co-writer of “The Road Home,” a feature film that screened in festivals before issuance on DVD. With the addition of the assets of Forum Publishing, the company becomes more than just the software. Madnick envisions his company as the centralized location for information and resources for scriptwriters now available in multiple places. A writer wanting to know which producers are looking for comedies, how to find an agent, or how to get a script to a certain actor or actress need only come to Final Draft, he added. One other new initiative being pursued by Final Draft is a community website where writers can gather virtually to discuss the benefits and pitfalls of their field. “You can be sure when you come to Finaldraft.com you are going to get the best,” Mellott said.

A U.S. Federal District Court in Boston ruled Friday that a patent infringement lawsuit by drug maker Amgen against competitor Roche Pharmaceuticalscould move forward. The suit charges that an anemia drug under development by Roche called Cera violates patents on Amgen’s Epogen and Aranesp. The court also denied a move by Ortho Biotech, a division of Johnson & Johnson, to act as a co-plaintiff in the suit. Amgen is based in Thousand Oaks.

The United Chambers of Commerce hold its board of directors meeting. 7:30 a.m. 5121 Van Nuys Blvd. Van Nuys (818) 981-4491 unitedchambers.org

A government report says credit card companies bury important information, use small type and fail to group related materials in billing statements, confusing cardholders. Read about it in the Chicago Tribune .

A small gain in consumer expectations helps cement estimates that growth will become sluggish in coming months. Read about it in The New York Times .