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Safeguard Scientifics, Inc. (SFE)
J.P. Morgan 11th Annual SMid Cap Conference Transcript
November 29, 2012 11:45 AM ET
John Shave - VP, Business Development and Corporate Communications
Steve Zarrilli - President and CEO
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Thank you, John. Good morning. My name is Steve Zarrilli. I have actually been the Chief Executive Officer of Safeguard for all of 28 days, but for those of you who have been following the stock, I’ve actually been with the company for the last four and half years, previously serving as the Chief Financial Officer.
I’m thrilled to be able to spend the next 25 to 30 minutes with you taking you through the Safeguard’s story. I’m hoping that I’ll appeal to both those who haven’t heard the story before, as well as to those who may have heard the story to give you some further insight as to what we’re attempting to accomplish.
Safeguard is a Philadelphia-based company. We’ve been on the New York Stock Exchange for more than 40 years. We’ve been in existence for just about 60 years. We’ll be celebrating our 60th anniversary in this -- summer of this coming year.
We have been a lot of things to a lot of people over the six decades in which we’ve been in existence, but for the last seven or eight years we’ve been focused very diligently on being a preferred growth capital provider to certain types of life science and technology companies.
We are, if you want an evergreen type of funding model. We take the proceeds from the gains from our deployment activities and roll them back into provide for new opportunities.
I’m going to hopefully be able to leave with you some thoughts around the team that we have, some of our recent successes, the sectors that we focus on and the resources that we have in order to conduct our game plan.
I’m -- hopefully as we go through this presentation today, you’ll have a sense that there are -- is a lot of value that may not even be apparent when you look at the financial statements of Safeguard.
We account for all of our -- virtually, except for one, all of our companies on a cost or equity method of accounting. So there is no fair value accounting that’s taking place. So if I put $1 to work and over the life of my involvement with that company, pick up my share of losses on that company. I adjusted downward, but I never adjusted upward. And then I take the difference between that adjusted value and the ultimate proceeds and that’s the gain that ultimately would work into our financial statements and into our book value.
That value is never reflected in our financial statements during the holding period and it’s that arbitrage and value that we really want to make sure shareholders and prospective shareholders focus on.
We’ve also had when we look at the track record over the last six years, we’ve had on -- in a completely blended fashion meaning winners and losers combined, we’ve had just over a two times cash on cash return history.
So if you just apply that track record to the cost of the deals in which we currently have capital deployed, which is about $190 million, multiplied by 2, compare it to, add that to the cash on the balance sheet and then compare that our market cap, you’ll see that there’s a pretty significant delta that exist between those two numbers.
We have 16 partnered companies today. I’ll give you a sense of what those companies look like. We call them partner companies. We generally like to have a stake of 20% to 50%. We generally don’t control but we have significant minority influence. We have a team that’s been in existence for a pretty substantial period of time here at Safeguard and they’ve got the skill sets and I’ll introduce to you some of those individuals in a moment. They have the skill set that we believe are important to identify, manage and then ultimately harvest the capital that we put into these companies.
Our balance sheet is strong. I can’t say that it was a strong today, it was, six years ago when I ultimately or four and half years ago when I first came to Safeguard. Safeguard had about $50 million of cash and about $150 million of debt. Today we have more than $200 million of cash. We have about $50 million of debt and that debt doesn’t come due over for another five and half years.
So the team that we are currently operating with, in addition to myself, Jim Datin has been with Safeguard for over seven years now. He runs all of our deal team operations. He has significant experience both in technology and life science. He’s been on the operating side of businesses, as well as the -- an executive that is capable of finding great deals and deploying capital.
We round out the executive team at the senior level with Brian Sisko who drives all of our activities around strategy and development and internal operations. And what’s important to know their? We do support our companies not only with capital but with other functional expertise in the areas of accounting, marketing, legal and other operating skill sets to help them through certain periods of evolution. We do want them to stand on their own but that isn’t important attribute that we bring to the table.