Businessweek Archives

Sweet Music And Returns From A `Blind Pool'

Inside Wall Street


'Blind pools" have a lousy reputation in the investing world. They are formed to merge or acquire an operating company with, supposedly, great growth potential. All too often, blind pools wind up as a front for stock manipulation schemes. But in the hands of a smart, reputable executive, a blind pool can offer dazzling prospects. So it is with the $7 million investors sank into RCL Acquisition Corp. when it went public in July, 1992. Those investors may have hitched their cash to a potential bright star.

RCL has attracted some big, savvy investors because of the seed-money organizers behind it, including RCL President H. Sean Mathis, former president of Ameriscribe, a major financial printer, and Mark Friedman, RCL's vice-president and a partner at the prestigious law firm Shea & Gould.

In February, RCL discovered an ideal target--HRM Holdings, whose Hauppage Record Manufacturing unit, a major maker and duplicator of audio and videocassette tapes for music and entertainment companies. HRM posted revenues of $40 million and profits of $1.8 million in fiscal 1992, ending last July 31. RCL and HRM have agreed to merge in a deal that should be completed sometime over the next two months. Once merged, the company will become HMG Digital Technologies.

BARN-BURNER. RCL's stock has held up well but has been no barn-burner, rising from 4 1/2 a share in late October to nearly 6. But some pros, who believe a big move may lie ahead, see tremendous earnings growth from RCL-HRM's share of the recorded-music market. "RCL's stock represents an opportunity to get into the ground floor of the booming recorded-music business," says one money manager.

The big kicker to earnings is an impending deal by RCL-HRM to acquire a compact-disk-duplication facility in the Southwest with annual sales of $30 million. Analysts project that the company's CD sales should increase 50% by 1995.

Analyst Tom Heysek at RAS Securities estimates that the combined RCL-HRM should earn 41 a share on revenues of $53 million in the year ending July 31, 1993, and 66 on revenues of $85.5 million in 1994. By 1995, the CD plant's sales should kick in, says Heysek, who sees RCL-HRM's earnings rising to 95 a share that year. Heysek expects shares of RCL to at least double in the next 12 months.GENE G. MARCIAL

Race, Class, and the Future of Ferguson

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

blog comments powered by Disqus