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Industry more attractive to investment community

Jerry EppersonJerry Epperson An insider’s view
The investment community just celebrated two years of a bull market in the midst of a remarkably unremarkable economic recovery. So far the recovery has been inconsistent and regional and while the auto sector has bounced back, other consumer durables have not done as well. Even consumer electronics retailers had a sub-par fourth quarter thanks largely to declining HDTV prices.

Government statistics show 18 months of economic recovery in the books, with some quarters showing big growth. Unfortunately, a closer look shows that growth was inflated by inventory building or exports.

Corporate America has almost $1 trillion in cash that it has accumulated in recent years, as it reduced debt, eliminated dividends, laid off workers and prepared for the worst. After all, in 2008, no one knew how much further the economy would free-fall.

Fortunately, the investment community appears to think the worst has passed. Most home furnishings stocks have rebounded nicely. Hooker and Leggett & Platt have doubled from their lows two years ago while Flexsteel and Ethan Allen have tripled. Bassett went from about a dollar to more than eight, and La-Z-Boy two years ago was $0.72 a share and now it is about $9. The mattress stocks Select Comfort (from $1 to $11) and Tempur-Pedic ($5 to $48) did even better! Why didn't you invest?

Today, the private equity groups have more cash to invest than ever, and we have 32 private equity groups that own or control furnishings companies, and 80 others have invested in our industry in the past. More than 60 public companies have made acquisitions in the furniture sector in the past, and 50 furniture companies have been public over the last 60 years, not counting those that are public today. Yes, we keep up with this stuff!

All this cash on the sidelines with American corporations and private equity groups is beginning to seek good investments or acquisitions and the multiples of earnings are rising, which will create more sellers. Plus in recent years, several Asian companies have acquired U.S. furniture companies.

On top of this, we see better housing numbers versus the dismal home sales in 2010. The investment community will look to find who should benefit, and that will lead to some initial public offerings. That is what led to multiple offerings in 1971-72, 1982-83, 1991-92 and 2005-2006.

As investment bankers, we monitor this closely and see the momentum growing. We do many valuations for private companies, and this momentum will improve their value as well.

We all may not be pretty, but we are a lot less ugly to the financial community than we were two years ago.

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