April 17, 2000

Forget dot-coms, this fund ventures into the old economy

Brad Creswell and Perot Bissell aren't in the business of predicting the Next Big Thing.

As partners in Seattle's Northwest Capital Appreciation, Inc., Creswell and Bissell are on the hunt for companies with roots in the old economy.

"Ultimately, it's got to be about cash flow," said Creswell. "Our businesses have business models that make money."

As an old economy buyout firm, NCA looks for companies with a proven track record of earnings -- companies that will benefit from better management and streamlined operations.

Their investment approach differs sharply from venture capitalists who are willing to plunge millions into new economy start-ups with untested business models -- dot.coms, for example, that promise explosive revenues but also high burn rates and uncertain earnings.

Brad Creswell (left) and Perot Bissell are partners in Northwest Capital Appreciation. Their investments range from cosmetics companies to pulp and paper mills. Photo by Sam Bennett

Founded in 1992, NCA focuses on acquisitions and strategic consolidations of mid-market companies with annual revenues of at least $20 million. The company has bought five companies and completed 30 add-on acquisitions in privately held companies, putting $60 million in equity to work.

For example, in 1997 NCA purchased Port Townsend Paper Co., a pulp and paper operation. NCA brought in a new management team to improve profits and narrowed the grades of paper the company produces. A year later, NCA purchased the grocery bag division from Longview Fibers in Portland.

"We identified a strategy to create competitive advantages for the mill that it wasn't taking advantage of itself," said Creswell. "The new management team increased production, and we went from being the No. 5 biggest seller of grocery bags on the West Coast to No. 2. in about 12 to 18 months."

Between 1998 and this spring, NCA also completed 17 radio station transactions, consolidating 43 small- to mid-sized stations -- from Coos Bay, Ore. to Anchorage. The acquisitions created New Northwest Broadcasters -- the 11th largest collection of radio stations in the U.S.

"If you own multiple stations in the market, you are a bigger voice in that market and that gives you the ability to drive revenue growth," said Creswell.

Creswell and Bissell also found value in the budget cosmetics industry. Between 1996 and 1998, NCA consolidated several small, yet competitive cosmetics companies selling products such as 99-cent lipstick, into AM Cosmetics, which now commands a 45 percent share of the budget cosmetics industry.

Their investment choices --- whether radio stations, security alarm companies or paper companies -- are based on extensive research into growth potential. But Creswell and Bissell said they're not turn-around specialists.

"With any company we invest in, we spend a lot of time with management," Bissell said. "We research the industry and research the competitive situation. We make sure there is a real opportunity to create a strategic advantage. If something doesn't get past that filter, we pass on it."

In addition to hiring new management teams when needed, NCA helps streamline and improve operations by introducing an Internet strategy if it does not exist as well as upgrading software systems.

They said the streamlining measures do not come at the expense of layoffs, and in most cases the companies have increased employees as business improves.

NCA aims for a 30 percent annual return on investment for the firm's institutional and high net-worth investors. They sell when they've met their goals.

"We sell once we believe we have identified a strategy, executed against the strategy and proven the strategy," Creswell said.

But that strategy does not include dabbling in new economy tech ventures. "We're not tempted to go into that space," he said. "We're much better qualified to do this than to pick the next dot.com success story."