24/7 Wall St.

Stock Tickers: SFE, CLRT, CMGI, ICGE

Late last week, 24/7 Wall St. got the chance to interview Peter J. Boni, President & CEO of Safeguard Scientifics, Inc. (SFE-NYSE).  Mr. Boni has been President & CEO of the company for roughly 22 months, and it may be worth noting that at the end of August 2005 the shares of Safeguard have risen from $1.62 at the end of that time to its current price of $2.68.  I did get a chance to discuss many issues with the company, and the first and foremost issue is worth noting:

Part of our interest in interviewing Safeguard was because of the recent interest in CMGI Inc. (CMGI-NASDAQ) and other incubators.  QUESTION: So without taking away from your own company in a comparison, what is the difference and do you have plans to transform into more of an operating company that also has an incubator?  If not, is this something you would consider?

For starters, we did not spend too much time discussing the merits of other incubators and other holding company investment vehicles.  But Mr. Boni did want to be clear about the incubator term being very much in the past when the investment climate was in the tech bubble days; and now they are operating solely as a holding company with gains on investments being the primary goal for each investment.  Safeguard has a 50-year history and has been a public company for close to 20 years.  The focus is entirely on investment opportunities in information technology and in life sciences.  Without being able to predict returns, the “Goals” were fairly clear: look for opportunities that are in the 3X to 5X returns that come from a liquidity event, with a longer-term outlook, staying diversified, and by looking at opportunity stages that are between the first round stage and the private equity stage.  The company also has a managerial structure that compensates managers based on the company’s market capitalization of the company, and the long-term vision is to try to make the company a $1 Billion company in the coming years. 

Outside of the differences and similarities, we did have numerous questions for the operations and holdings.  Some questions of course could not be answered because they would be too ‘prediction-oriented,’ but you will see in the comments later that many of the areas were covered.

ADDITIONAL QUESTIONS: What sort of investment activities are you currently focusing on, and does the company have any plans to raise cash or leverage the balance sheet any more?  What is the current value carried on the books of the cash and the public company shares you own? How much more value do you ‘guestimate’ as the private companies?  Would the company consider any special or one-time dividends or other shareholder friendly initiatives? What do you think the company can do to garner more research following from traditional boutique brokerage firms?  What do you identify as your largest opportunities and what are your longer-term goals?

The company previously had 40 portfolio companies that it scaled downto 10, and currently has 16 portfolio companies with shares ofClarient, Inc. (CLRT-NASDAQ) being the one current public holding.  Theother 15 investment holdings are mixed between InformationTechnology and in Life Sciences, although there is quite a bit ofconvergence between the two areas.  Four of these are majority held andtwelve of these are minority investments. In these arenas Safeguardreally tries to limit extra risks where the applications and goals arenot really known.

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