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Technology Stocks : TAVA Technologies (TAVA-NASDAQ) -- Ignore unavailable to you. Want to Upgrade?

To: JSI who wrote (27407)	2/3/1999 3:52:00 PM
From: Karl Drobnic	Read Replies (2) \| Respond to of 31646

Acquisitions: We know that JJ wants to continue growth by acquisition. He's said so. So lets assume he shortly switches to using cash. To prudently use that cash, he has to beat the return available from a risk-free investment. Assume a risk-free investment pays 4.5%. He also needs to do better than inflation. So figure 2% for inflation. He's at 2.5%. Now whack him with taxes and he's making a real return of about 1.6% on the cash. Not very attractive. What else can he do? Pay us a dividend? Probably not. Buy back shares? A real good choice. He could buy back 25% of the shares at $7.50. TAVA goes from earning $1.00/share to $1.25/share, a 25% return. So in the sprectrum between risk-free return and buying back shares, expecting a 10% return on acquisitions is reasonable. Usually, when buyers have lump sums of cash, they are able to drive hard bargains. And given TAVA's huge database advantages (information they are collecting from clients), TAVA ought to know quite a bit about the other SI companies. So I think TAVA should be able to go on finding companies to buy at 10:1 ratios. If not, buy back the shares, or grow the business internally.