Every January, FOCUS releases an open letter to business associates and friends of the firm, candidly reviewing the past year, summarizing completed transactions, citing Partner and staff additions and generally looking ahead to prospects for the coming year.

In addition, Douglas E. Rodgers, Chief Executive Officer and Managing Partner, and Mark Capaldini, Chief Marketing Officer and Partner, are contributing an article: “The Time for Action May be Now – 2005 Outlook for Middle Market M&A.”

Active FOCUS Deals

With over 23 years of experience across many verticals, FOCUS currently has over 25 active transaction engagements in its four offices in Atlanta, Chicago, San Francisco and Washington, DC in the following specific business sectors:

• Business Services
• Call Center Software
• Construction (multiple assignments)
• Consulting
• Digital Printing Services
• Government Contracting (multiple assignments)
• Healthcare Business Services
• Information Management
• IT Outsourcing (multiple assignments)
• IT Services (multiple assignments)
• Leisure
• Media
• RFID Technology
• Security (multiple assignments)
• Software

Our transaction process provides us with up-to-the-minute market knowledge in these sectors. Are any of them of corporate development interest to you? Give us a call or drop us a note.

Inquiries should be addressed via e-mail to info@focusbankers.com, by telephone to 202-785-9404, x200 or by fax to 202-785-9413.

2004 in Review – FOCUS Closes Six Deals -- Revenue up 170%

By Marshall Graham

In the past year, the firm’s record of deals closed, triple-digit revenue growth and expanding assignment list demonstrates the validity of FOCUS Chairman Marshall Graham’s January 2003 vision for the firm:

“Our goal for FOCUS Enterprises is clear. We aim to become the largest and most effective investment banking firm of its kind in the region. We will continue to leverage our Partners’ operating experience, our consulting experience, our deep research capability and our proven execution methodology. We will continue to provide the highest level of strategic and advisory services. We will continue our rapid growth."

Early in 2004, FOCUS was serving about 15 clients in any given month. By the end of the year, the average grew to 25 to 30, in part because FOCUS delivers a unique investment banking service tailored to the needs of emerging growth, middle-market and small companies. FOCUS clients experience a transaction process that is not only highly-structured but also disciplined and well-documented.

A year ago, FOCUS had a single Washington, DC office, concentrating the firm’s activities in the Mid-Atlantic region. Today, FOCUS continues to maintain a headquarters office in Washington, DC, but has added offices in Atlanta, Chicago and San Francisco. These three new offices provide a national “footprint” for the firm, which has served clients across the U.S. and Canada throughout its history.

We anticipate adding new offices in the future so that we can better serve our clients by attracting additional seasoned operating executives and deal professionals. Today we have 15 Partners in our four offices. In our February newsletter, we will profile three new Partners who have joined FOCUS in Atlanta and San Francisco, taking our Partner total to 18.

FOCUS Completed Six Deals in 2004

In 2004, FOCUS completed numerous M&A, corporate sale, consulting and strategic partnering assignments. Of particular note are the following six publicly-disclosed M&A transactions:

TRAXUS Technologies, Inc. Acquired RFID Wizards Inc.

FOCUS initiated the transaction, acted as financial advisor to and assisted with the negotiations as the representative of TRAXUS Technologies, Inc., a leading consulting and systems integration company focusing on RFID technology. RFID Wizards, Inc. offers a broad range of RFID services. Click here for the TRAXUS/RFID Wizards Web Tombstone.

CALIBRE Systems, Inc. Acquired Strategic Management Initiatives, Inc.

FOCUS initiated the transaction, acted as financial advisor to and assisted with the negotiations as the representative of CALIBRE Systems, Inc., an employee-owned government information technology and management services firm. Strategic Management Initiatives, Inc. provides strategic management and engineering analyses to the problems facing the government and Fortune 500 companies. Click here for the CALIBRE/Strategic Management Initiatives Web Tombstone.

SiloSmashers, Inc. Acquired Denali Associates, Inc.

We initiated the transaction, acted as financial advisor to SiloSmashers, Inc. and assisted in arranging capital financing for the acquisition. SiloSmashers, a leader in management and technology consulting serving primarily Federal and state government agencies, provides professional solutions helping to drive organizations toward peak performance. Denali Associates has achieved outstanding success in providing management consulting services for a wide variety of Federal agency clients. Click here for the SiloSmashers/Denali Web Tombstone.

Lifeline Systems, Inc. (NASDAQ: LIFE) Acquired PROTECT Emergency Response Systems, Inc.

FOCUS initiated the transaction, acted as financial advisor to and assisted with the negotiations as the representative of PROTECT Emergency Systems, Inc. PROTECT introduced wireless emergency call systems specifically designed for the senior living industry. Lifeline Systems, Inc. is the leading provider of personal response services and emergency call systems. FOCUS is very active in the physical security space and, more specifically, the personal security space. Click here for the PROTECT/Lifeline Web Tombstone.

Wood Flooring International Acquired MINTEC Corporation

FOCUS initiated the transaction, acted as financial advisor to and assisted with negotiations as the representative of the investors of MINTEC Corporation. MINTEC Corporation specializes in the manufacturing and importing of manufactured bamboo flooring, sold under the brand name BAMTEX. Wood Flooring International is the premier manufacturer and importer of exotic wood flooring. Click here for the MINTEC/Wood Flooring International Web Tombstone.

NATELCO Management Acquired NATELCO

We initiated the transaction, acted as financial advisor to, and assisted with the negotiations as the representative of NATELCO Corporation, a high quality provider of electrical construction and maintenance services. Donna M. LaScola, President and CEO of Natelco, and prior to this transaction a minority shareholder, is now the majority shareholder, joined by seven other management team members in acquiring 100% ownership. FOCUS advised in structuring a company stock redemption of all investor owned shares, facilitating both senior and subordinated debt financing. Click here for the NATELCO Web Tombstone.

For more information, contact Marshall Graham at 202-785-9404, x 226 or via e-mail at graham@focusbankers.com.

The Time For Action May Be Now -- 2005 Outlook for Middle Market M&A

By Douglas E. Rodgers, Chief Executive Officer and Managing Partner, and Mark Capaldini, Chief Marketing Officer and Partner

FOCUS believes that 2005 has the potential to be a strong year for M&A activity in the middle market. But we aren’t certain that the outlook will improve steadily throughout the year. In fact, there may be reasons to consider transaction activity sooner rather than later.

MAJOR TRENDS

First, let’s briefly review the major trends that will impact middle market M&A activity:

The economic outlook is steadily improving. Manufacturing capacity utilization rose to 79.2% in December, the highest figure since January 2001. Signs of sustained expansion are everywhere – including increases in manufacturing output and utility production coupled with decreasing oil costs. These trends may result in modest revenue growth, based both on increased unit sales and small price increases.
Interest rates will remain relatively low by historical standards, though increases are expected throughout the year. Note that the Federal Reserve increased certain key interest rates five times in 2004 and another increase is expected in February. If these increases continue to be small one-quarter point increases, the impact on access to debt should be modest. Perhaps of greater significance, banks and other senior lenders appear to be increasing the multiples of cash flow against which they will lend. Expansions in cash flow multiples have a very positive impact on M&A activity and are more important than rate increases -- as long as rates remain relatively low.

There is lots of cash on the balance sheets of large corporations. Increasingly shareholders will be looking for it to be put to work or distributed as dividends. The very low interest rates being earned on cash are a disincentive to keeping surplus cash on the corporate balance sheet. With improving but still not dramatic economic growth, corporate growth goals will increasingly be achieved by a balanced mix of organic revenue growth and acquisitions.

Private equity funds are sitting on large amounts of cash, both from legacy funds and from new funds. Multiples in certain sectors have already been boosted by competition among buyers. In a few cases, financial buyers have been willing to outbid strategic buyers. This is a dramatic sign of increasing activity and competition for M&A opportunities in the middle market.

The weak exchange rate for the U.S. dollar will probably attract foreign buyers to the U.S. market. There is an expectation that the exchange rate may “bottom out” during 2005, meaning that the “window” for especially favorable exchange rates will gradually close. FOCUS expects to see increased activity by both foreign corporate buyers and by foreign financial investors in the U.S. middle market.

CAUTIONARY INDICATORS

Now for the cautionary indicators that may counter some of these trends:

Iraq still provides lots of uncertainty on the fiscal and geo-political fronts. As Alan Abelson, Barron’s columnist, writes in his “Up & Down Wall Street” column dated January 17th, “the only thing that can be said for sure about Iraq is that it’s still a four-letter word."
Political priorities may trigger spending cutbacks. President Bush has announced that he intends to cut our Federal government deficit in half – while maintaining tax cuts that he hopes to make permanent. With substantial non-discretionary spending in the budget and ongoing significant military expenditures in Iraq, there must be substantial spending cuts. It already is expected that certain government contractors will experience substantial spending cutbacks for major weapons systems. But the cuts won’t stop there. Expect that a range of other businesses will be affected, too.

Weakness in the stock market may continue. The stock market went into a swoon during the first two week of the year, with the S&P 500 down 2.3% in the first ten trading days of 2005. Is this just a blip or an indication of broader stock market weakness? For companies hoping to use stock as a component of M&A consideration (either minor or major), this is a potential problem.

Oil prices could return quickly to record levels, especially if there is continued instability in the Middle East.

Deterioration of dollar exchange rate may continue. If the dollar exchange rate doesn’t “bottom out” as we hope, there could be continued deterioration in our trade deficit, creating additional pressure on interest rates with potential impact on foreign purchases of our debt.

In short, FOCUS agrees with commentators at Merrill Lynch, Goldman Sachs and elsewhere that inflation/interest rates remain the biggest concern for 2005. If there is significant bad news on that front, the middle market M&A outlook could quickly move from positive to negative.

As our friend, Ed Peters, former CEO of Data Direct, advised at a FOCUS seminar in June 2004, it is probably best to “Eat when served.” That means that attractive M&A opportunities should not be taken for granted during the first half of 2005. While we believe that the M&A outlook will continue to be positive, we can’t assume that the outlook will remain positive for the full year.

The time for action may be now.

For more information, contact Doug Rodgers at 202-785-9404 x341, or via email at Doug.Rodgers@focusbankers.com

International M&A Expert Gianpiero Balestrieri Joins FOCUS as Partner

Washington, DC (January 2005)--FOCUS Enterprises, Inc., a national investment banking firm providing merger, acquisition and corporate finance services to emerging growth, middle market and small companies, announced that Gianpiero (JP) Balestrieri has joined the firm as a Partner and will be based in the firm’s Washington, DC headquarters.

“We are delighted that JP has decided to join our firm. For many years now, he has operated as a senior executive and investment banker on behalf of various companies and we look forward to leveraging JP’s experience, particularly in the IT infrastructure, transportation, energy and oil and gas sectors. JP’s international experience will significantly expand our firm’s capabilities in the coming years,” said FOCUS Chairman, Marshall Graham.

JP brings over thirteen years of management and professional services experience representing and advising investors, companies, lenders and acquirers in all phases of investment and exit strategy, business development, origination, structuring and closing for M&A; divestitures; turnarounds; alliances; corporate and structured finance transactions.

He received an Honors BA in finance/economics (summa cum laude) from the York University/LSE, a J.D. (Dean’s Fellow) and an MBA (finance/accounting curriculum) at the American University in Washington, DC. JP is fluent in French, Spanish, Portuguese and Italian with a working knowledge of Arabic and Greek.

About FOCUS Enterprises, Inc.

Headquartered in Washington DC, with offices in Atlanta, Chicago and San Francisco, FOCUS provides a range of investment banking services tailored to the needs of emerging growth, middle-market and small companies. FOCUS specializes in transactions for entities with $5 to $100 million in revenues, serving entrepreneurs, corporate owners, public companies, private companies or operating units and various types of investors.

For 23 years, FOCUS has successfully integrated corporate development consulting and transactional expertise with its extensive research capability. The firm has long standing experience in completing mergers, acquisitions, divestitures, capital formation assignments, corporate development consulting projects and financial advisory engagements.

Operating nationally and internationally, seventeen FOCUS Partners, Senior Advisors and Principals provide over two centuries of C-level operating experience in a variety of industries.

Please contact us at: info@focusbankers.com