Childs Company Advises Lucas Group in Recapitalization

Childs Company has assisted Lucas Group, the nation’s premier contingent search staffing business, in its sale of a majority interest of its business to H.I.G. Capital LLC. With 17 locations, Lucas Group has built a reputation for successfully providing contingent search services in multiple markets and industries, including finance/accounting, legal and military.

Art Lucas, founder of the company, sought a transaction whereby he could achieve personal diversification but keep the company and its brand intact to allow the company to continue its strategy to be the premier contingent search business in the U.S. In partnership with senior management, Childs Company developed the company’s positioning in the marketplace and assisted the company in finding the right financial buyer to achieve their objectives.

Childs Company’s knowledge of the staffing industry and our proprietary database of private equity firms who have indicated an interest in staffing and IT services firms enabled us to quickly indentify interested and capable buyers. H.I.G., a $750 million private equity fund based in Miami, has purchased stakes in Westaff and Insight Global, Inc. in 2007, making them a natural acquiring party for the Lucas Group transaction.

For more information on our investment banking services, contact Jim Childs.

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Smart Investing: Market Outlook

Through July, the S&P 500 was up approximately 4% and the EAFE Index was up 5%. Absent any major geopolitical events, we think that the U.S. equity market will continue to trade up during the remainder of this year. Although Dow and S&P indices are at or near record highs, valuations are not. Since the end of the 2002 bear market, the S&P has doubled but earnings have tripled. Even though the S&P 500 is at or near is all time high, its P/E multiple has actually declined 42% since the market low in 2002.

As we have noted before, international economies are growing at a faster rate than the U.S. The outlook for European economic growth remains strong and Japan’s growth has been better than expected. The BRIC economies (Brazil, Russia, India and China) offer a mixed bag: good growth outlooks but possibly due for market corrections.

Better growth in international markets combined with a falling dollar both point to opportunities in big cap international stocks. Not surprisingly, stocks with high foreign sales exposures are what’s working in 2007. However, not all areas benefit equally. With almost 40% of revenue from overseas sources, mega caps stand to benefit the most. At the sector level, energy, materials, industrials and technology have the greatest portion of revenue from abroad.

For more information on how you can benefit from these global trends, contact Matt Childs.

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Recapitalizations Simplified for Today’s Business Owner

Everyone has read about the emergence of private equity and the relative abundance of capital that is available to buy privately held companies. Not only has this trend helped company valuations it has also expanded the liquidity options available to company owners.

A recapitalization (also called a “recap” ) is a financing whereby an equity investor buys a portion of the company’s stock, but not all of it, and existing shareholders “roll over” a portion of their ownership. Most buyout firms prefer controlling interests so they typically buy 60%-80% of the business in these scenarios and typically use bank and other debt financing to capitalize the company.

This type of transaction is excellent for those owners who want to take advantage of today’s strong valuations and diversify their wealth while also staying to run the business. A successful recap will result in a “double dip” opportunity whereby the owner has the first transaction and then sells his or her remaining equity in the next transaction.

A recap is also attractive for key management members who hold no equity in that often times an option plan is set up to reward those players for the value increase from the date of the recap.

For today’s business owner it is important to know what tools are available as you consider your financial objectives.

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Georgia Economic Indicators 2nd Quarter, 2007 Review Unemployment 4.7% Personal Income +5.3% Single Family Housing Permits -23.3% CPI 2.7%

After a relatively flat first quarter, the U.S. economy rebounded in the second quarter and we now anticipate GDP growth of 2 to 3% for 2007 versus 3.3% last year. The economy will likely grow more slowly than last year due to the continued drag of high energy prices and a declining residential real estate market.

The most significant threat to consumer spending is high energy prices. The average price of a gallon of gasoline has increased from $2.40 on February 1 to approximately $3 now.Some estimates are that this increase alone translates into a reduction of over $100 billion in other consumer spending during that time period.

The worst may not be behind us in the residential real estate market and we should expect further problems in this sector. A number of measures suggest that housing prices remain inflated and tighter lending policies will continue to limit the number of prospective buyers. Over the next 12 to 18 months, an estimated $1 trillion of ARM’s will reset…and it couldn’t happen at a worse time. Interest rates are higher and property values are down. Be prepared for more negative headlines regarding the mortgage market.

Offsetting the negative impact of higher energy prices and the real estate market are two key factors: (1) strong global growth which will boost U.S. exports and (2) healthy job and income gains which will support consumer spending.

Inflation ratcheted up during the first half of the year due to higher food and energy prices and remains above the Fed’s target level. Economists are split as to whether the Fed will hold rates through the end of the year or will be forced to raise rates near the end of the year in order to stave off recession. In any event, it seems unlikely that rates will be higher.

All in all…pretty good news for the remainder of 2007. The economy continues to demonstrate resilience and interest rates shoud be stable.

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