Blockbuster Days Over, but He’s Still Dealing

Gary M. Cypres was a key figure in putting together one of the biggest mergers of the 1980s--the $5-billion combination in 1985 of Allied Corp. and Signal Cos., where he was chief financial officer.

Now he’s set his sights much lower. As head of a new, $200-million fund in Los Angeles, Cypres is looking for deals about 1/100th that size.

His tool is West Coast Private Equity Partners, believed to be one of the nation’s largest funds targeting the “middle-market” financial battleground. The fund is financed with money solicited during the past year from 12 well-heeled individuals and institutions in the United States and Asia. It enjoys particularly close ties to San Francisco banking giant Wells Fargo & Co., one of its investors.

But given the softness in the California economy and the skittishness of banks to make new loans needed to finance deals, just how much business is out there?

Cypres concedes that this isn’t the ideal time to look for deals. Bank financing, he said, is “very difficult to obtain,” even when deals are well structured to reduce a bank’s risk. In addition, he said, business owners are disillusioned that the prices they can get now for part or all of their businesses are frequently much lower than would have been received a few years ago when financing was looser.

“The inflated prices that businesses were being sold for in the decade of the 1980s is gone. To some extent, you have to overcome some of that ‘80s legacy,” he said.

But Cypres said he believes that there remains a large market in California of mid-size private companies with owners looking to convert some or all of their stakes into cash. So far, he’s arranged two deals: buying large chunks of a housing supply company and an oil-related database firm. He is working on a deal involving a retailer. Cypres declines to name his clients.

A native of the Bronx, the 6-foot, 3-inch Cypres was an all-New York City basketball star in high school, then started at forward for Hofstra University in the mid-1960s. He earned his degree in business, arbitrarily choosing to specialize in accounting because, he said, it was first on a list of specialties shown to him by the business school.

Cypres, 47, joined the Wheelabrator-Frye conglomerate in 1973, working on a string of acquisitions that included Pullman Inc. and Neptune International. He joined La Jolla-based Signal in 1983 when Signal bought Wheelabrator for $1 billion. After finishing work on the 1985 Allied-Signal deal, Cypres left, eventually joining the Wall Street firm Lazard Freres & Co.

“The merger was a very difficult situation. He is an inordinately bright financial guy,” said former Signal Chief Executive Forrest N. Shumway, Cypres’ former boss.

The middle market Cypres is targeting now involves providing credit to mid-size companies, firms with sales of $30 million to $200 million. It is one of California’s most competitive areas of finance, with the state’s banks and Japanese institutions stepping up their efforts in recent years to tap the huge, lucrative market of about 15,000 companies.

Cypres said a typical deal for the fund might involve a family-owned company whose owners want to cash out or sell a chunk of a business, perhaps for estate planning purposes. Prospective buyers would need funds to use as equity in making the purchase. This fund might provide from $5 million to $30 million, with banks supplying the rest of the financing.

Some funds have formed recently that are meant to bail out companies that went on a borrowing binge in the 1980s and now regret it. Cypres and his partners said they want to avoid doing that. “We are much more interested in something that doesn’t require a big fix,” partner Scott Dunfrund said.

Specifics about some of the investors and the size of their investments are kept secret. But Wells Fargo is helping bankroll the fund as an investor, and two former Wells senior executives, Dunfrund and Charles A. Greenberg, are partners. In addition, Wells may provide some of the bank financing needed to do some of the deals, Cypres said.

Other major investors include Japan’s Nippon Credit, an affiliate of Bank of California and pension money from such firms as GTE Corp. and the Henley Group.