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Merchant bankers seek 'diamonds in the rough'

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by Paul Flemming

SBJ Staff

Bob Mahoney and Dimitrios Koukoulomatis are looking for a few good deals to add to their growing stable of companies. It's not so much bargain-basement hunting as searching for diamonds in the rough.

"It's a question of identifying those hidden values," Koukoulomatis said.

Mahoney, chief executive officer, and Koukoulomatis, a managing director, have since August bought controlling interest in four companies. Their company, Community Investment Alliance, is looking for more.

A profile of enterprises that interest them includes companies with at least $1 million in annual revenues and up to $10 million a year, a five-year history of strong cash flow, a competitive advantage in its market and a market that preferably has high barriers to entry.

Koukoulomatis said hands-on management involvement by CIA does not always, or even often, mean previous management is replaced. Part of what the company looks for in a possible investment is experienced management that can implement a strategic plan that has achievable goals.

The company is neither a bank, nor a brokerage for passive investment. Mahoney called the activity merchant banking. Mahoney and Koukoulomatis, as well as others on CIA's board, lend their expertise, as well as capital, to the companies they invest in.

"All of our training is in this hands-on stuff," Mahoney said.

Mahoney is president of Tri-States Service Company, chairman of Bormon Investment Company, founder of Germany-based defense contractor TSS Deutschland GmbH, and most recently chairman and CEO of Burns Pauli Mahoney Company, a St. Louis investment banking firm. He sold his interest in the St. Louis firm and has put $4 million into CIA.

The other managing directors of CIA include Koukoulomatis, Greg Spencer former owner of CIA's predecessor company, Missouri Advisory Council Mac McCartney, Patrick Lee, John Duggins and Marshall Gordon, among others, who bring experience in industry as well as academic credentials to the table.

Mahoney said he seeks high-net-worth individuals who wish to invest. He said investments of a minimum of $500,000 are sought.

CIA will close investment in its initial fund, probably in September, at $10 million, Mahoney said. Subsequently, more funds will be opened.

"In a highly leveraged capital structure, this is for high-risk investors. Of course, the possibility of high rewards is a part of that," Mahoney said. "You invest in a rowboat and hope it comes in the Queen Mary. And if it doesn't, you hope you've just sunk a rowboat."

With $5 million in equity investment, CIA can become a small business investment company with access to up to $7.5 million in low-cost money from the government.

"The returns come back when we resell assets," Mahoney said.

The investments so far have come in four companies. Select Impressions and MetroPolymer Labs Inc. are local companies, while sister companies Gared Sports Inc. and Performance Sports Systems Inc. are in St. Louis and Indianapolis.

Those companies illustrate some of the characteristics of investments attractive to CIA.

Gared is an exclusive supplier of basketball backboards and rims to the National Basketball Association, and sells backboards and rims to schools and institutions. Some of the company's products are patented.

MetroPolymer Labs has a proprietary process for striping roads. Mahoney said the method, which results in longer-lasting and more reflective stripes, is positioned well to take advantage of changes in the way contracts are let for those jobs.

Mahoney said future purchases could involve moving operations, and the jobs that go with them, from around the country to the Springfield area.

Whether that's the case or not, investments are investigated throughout the nation, he said.

The company sponsors the Venture Capital Forum of the Springfield Business Development Corporation, takes leads from bankers and investment bankers, and conducts its own research in the search for those diamonds in the rough.

Community Investment Alliance literature said it structures transactions with three- to five-year exit strategies.

Mahoney said quarterly audits will be made available on CIA's performance. He said a proven track record of success will be the best way to attract investors.

In addition to existing business turnarounds, CIA will devote up to 10 percent of its investments to microenterprise, entrepreneurial startup companies, Mahoney said.

A developing program in that area would link college students into a long-term relationship with startup companies in a kind of elevated, higher-education Junior Achievement, Mahoney said.

And CIA has community betterment as part of its program. It has given a $2,000 scholarship to a local sculptor to help pay for education and other expenses to allow his art to be made. But here, too, Mahoney has an interest in returns.

"We're not doing this for charity," he said. Plans for selling the artworks that result from the scholarship are part of the grant.

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