A Valuation of Old Town
We just had a quick visit from NYC friends Steven and Leslie. I know both from my Bankers Trust days of yore. Steven was a colleague who was a controller and then a CFO of several businesses I ran. Leslie was a central Human Resources professional. We have stayed in touch over the years and, indeed, Steven and I have worked together on other private company ventures. We go back almost thirty years and it was great to see them both. Kim knew Steven from our days in the Seaport and had heard a good deal about Leslie, but hadn’t met her. The occasion of the visit was that Steven agreed to be a guest lecturer in my class for Advanced Corporate Finance. I had asked him to speak on the subject of valuations, a pivotal topic in the course that fell almost exactly mid-course. He agreed and they combined the trip with a visit with Leslie’s son, who lives in West Hollywood and a visit with some other friends in Palm Springs.
They drove down from Los Angeles yesterday and got here with enough time to get a tour of the grounds and house of Casa Moonstruck. Steven reads this blog and wanted to put a visual picture to all the stories he has followed. It was surprising how much he recalled from the various stories and he commented about this and that as we toured the grounds. As Nëw Yorkers who winter in Florida, it was easy to impress them with the wonderful horticulture in our gardens out here. I sometimes forget how special this property and this succulent garden really is and it is always fun to see it through the eyes of someone new to the place. I showed them the games area, the front door, the patio and spa area and then we went down the hillside and walked the various paths on the back slope. They had an appreciation for all the new plantings and all the artwork I have bothered to install on the rocks and open spaces of the hill. We stopped to sit on several of my seven benches that litter the gardens in strategic locations. Naturally, I had to explain the story of the Bison Boulder and all that it entailed from the conception to the installation. Then it was up the hill to the Cecil Garden with its 1400 pound basalt column pondless fountain and the bonsai gardens all around. The final stop was at the Fairy Garden on the far side of the garage where we not only saw the gnome guarding the Fairy House, but also saw Joventino taking the chain saw to the Agave seed stalks, which we had agreed should be cut down before they had the opportunity to fall on something in the wrong direction.
It’s fun for me to show off my work and we hadn’t even gotten to the interior of the house, which is a tour unto itself with the mosaics in the kitchen and the huge folding doors out to the deck and the Ocean view it overlooks. We sat and chewed the fat, as they say, until it was time to suit up for the evening lectures. The plan was to take two cars and drive to Old Town, which is conveniently located five minutes from the campus. That way we could take our guests to at least one San Diego attraction and have a nice Mexican dinner before Steven and I had to run up the hill to the University. We did just that and left Kim and Leslie to do whatever they had on their agenda while Steven and I went to prep for the lecture on valuations.
I hadn’t realized that my University of San Diego life is very much my own and even Kim has not joined me on a lecture visit to the University, which I now do every Wednesday night and will do so for both this and next semester at the very least. It was nice to have someone, in this case a close old friend, join me for the evening journey, as unexceptional as it might be. It reminds me that sharing even the littlest of things makes them all that more special. So, Steven and I stopped at Carl’s Jr. for a large Diet Coke for each of us and carried on up the hill to the underground parking garage of the Kroc Center. I enjoyed showing Steven how close to the elevator I was able to park, given the time of my class, which starts at 7pm.
Steven’s topic for the day of valuations was one with which he felt particularly comfortable. It’s no wonder given that his role as a controller, a CFO and a COO almost always involved and still involves the use of valuation methodology to justify incremental funding, to establish a defensible sale price or to justify an acquisition price. The moving parts of the process are well understood by most MBA’s and involve the risk-adjusted discount rate, the imbedded growth rates (especially of revenues but also expenses since they lead directly to the all-important EBITDA that is the Lingua Franca of valuations). The equally important last step is to establish and rationalize the appropriate multiple that should get applied to that EBITDA to establish the appropriate terminal value of the enterprise. The stronger the business model and steeper the growth, the higher the multiple, and the best way to justify that and defend it against contrarians is to have good comparables, as most of us would intuitively understand.
Steven did a masterful job of walking the class through the fundamentals of why valuations were so important to the corporate financing process and then explained the most common methodologies that can be used. We had agreed ahead of time that Steven would present a valuation case study as the summation of his lecture. He did just that by using a real-time case of a company for which he acts as COO. That means that he, indeed, must develop a valuation on a regular basis for his company. There is nothing that helps students feel the reality of their learnings better than having practitioners like Steven walk through real situations that they face. The presentation he made was based on his company’s board presentation last Friday. It doesn’t get more real than that. Needless to say, the students loved it. One even emailed me with a simple message, “Best class yet.”
After the class, we spent the half hour on the drive home just catching up on our lives. I am impressed how well Steven has conducted his life, balancing work and family life and even leaving a good amount of time to give back by doing tours for the State Department in African developing countries to help them with their business-building efforts. Not everyone is able to strike that sort of holistic balance and do it well and my hat is off to Steven for making that work for him and those around him.
While we were off at class, Kim and Leslie took to some leisurely shopping in the local Old Town shops and drove home from Old Town to spend some more time getting to know one another. This morning we had a nice NY bagel breakfast for old-time sake before Steven and Leslie headed off to Palm Springs. It was a quick trip of only20 hours or so and yet it was wonderful. Over time, I have come to appreciate some of my oldest friends more for who they are and the things they do overall than for the amount of time we spend together. Based on this quick, but tightly orchestrated visit, including the dinner together in Old Town, I have realized how much I value my old friendships like with Steven. There is a lot to value and it doesn’t take an analytical process to find it.