New leadership at SBIC
Earley replaces Lindauer as Waterside CEO By Michael Schwartz, Inside Business - Hampton Roads,
April 2, 2007
Waterside Capital’s new boss has dreams of
rising profits and stock prices. Its previous leader
has dreams of the sea.
On March 27, Waterside’s board of directors
voted unanimously for Lin Earley to replace Alan
Lindauer as CEO of the publicly traded small business
investment
company.
Previously serving as the company’s business development director, Earley
assumed his new role April 1. Lindauer will retire and stay on as chairman of
the board, replacing Peter Meredith who will become vice chairman. Martin Speroni,
the firm’s research director, is the new president.
Waterside has struggled recently through negative income levels and stagnant
performance of its stock, which is traded on the Nasdaq Capital Market. The company
reported a loss of $899,000 in net operating income in the last six months of
2006, compared to a loss of $101,000 in the same period 2005.
Lindauer’s departure, however, is not related to the company’s
performance. Earley said Lindauer wanted to retire.
A 52-foot boat is being built for him
in the Great Lakes. He plans to sail it to Hampton Roads around the eastern coast
of Canada later this year, Earley said.
Lindauer was unavailable for comment.
Earley, a local banker for 37 years, joined the company last August. He steps
in with hopes to improve Waterside’s financial condition and expand its
role as a viable lending option.
“Waterside’s losses have been much more than desirable,” Earley
said. “The good news is we’re still around.”
Currently the company, which lends money to established companies looking for
capital between $300,000 to $1 million, has a portfolio worth $28.3 million through
investments in 19 companies.
“There’s no reason you can’t be bigger,” Earley said.
With the help of his reputation and connections
from the banking world, Earley wants to expand
Waterside’s portfolio by concentrating on
new investments in the Mid-Atlantic with the goal
of having 75 percent of its business investments
in Hampton Roads.
Waterside, founded in 1996 by Lindauer, attempted to capitalize on the technology
boom as many venture capital firms did in the 1990s.
Peter Meredith admitted the company has struggled as a result.
“The climate for our kind of business just got tough,” said Meredith,
CEO of Meredith Construction.
Since the late 1990s, banks loaned money at levels
Waterside could not compete with. Realized gains
on Waterside’s investments were a loss of
$1.08 million for the last six months of 2006.
That loss, however, was an improvement over
the $1.31 million loss in 2005.
Now, as interest rates have come back up, Meredith
and Earley said they believe
Waterside’s niche has returned.
“Those people don’t know we’re around,” Earley said. “I’m
convinced those deals are out there.”
With Earley in charge, a few things will change.
Earley said the range of investments will concentrate on $1 million to $3 million.
Another area that needs fixing, Earley said, is in the execution of exit strategies.
As part of its agreements with investment companies, Waterside typically takes
ownership of a portion of the company. When the initial loan has been repaid,
typically after a period of five to seven years, Waterside seeks to cash out
its share of the company. Calculating the values of those shares at the end of
the relationship has forced Waterside into a few legal scuffles, most recently
with Suffolk-based New Dominion Pictures.
Earley’s goal is to do a better job of discussing
values on a periodic basis throughout the life
of the loan.
“We need to keep reminding the client that there is an end to this,” Earley
said. “Hopefully the exits won’t be so laborious.”
Earley will also likely change the policy of requiring
Waterside executives to sit on the boards of its
investment companies. That practice was intended
to
provide some control over how Waterside’s companies were operating.
“It’s my belief that the documents we use are adequate control and
we don’t
necessarily need to serve on the boards,” Earley said.
Doing away with that policy will also change the way directors fees are accounted
for. Fees paid to Lindauer, for example, were part of his compensation package.
Earley said the new policy in most cases will be to flow directors’ fees
back into Waterside.
The company will likely continue to reserve the right to attend board meetings
as it sees fit.
As for its stock price, which hovers sparsely traded around $4 a share, Earley
hopes a new strategy will sway the market.
“I’d love to have a better stock price,” he said.
Stockholders’ equity also was in the negative, a $1.7 million loss.
As chairman and vice chairman, Lindauer and Meredith also have an interest in
seeing that share price rise.
As of the end of 2006, Lindauer and Meredith owned 300,694 and 194,990 shares
respectively.
Earley said taking the company private is also an option. In order to go private,
however, the company needs to be making money.
“You have to be hitting at a different level than we’re at,” Earley
said.
IB
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