HI. TECH
Tech industry could help reverse decline in locally owned companies

By John Duchemin
Advertiser Staff Writer

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With a trend toward off-island ownership of the biggest hotels, banks, retailers and construction companies, Hawai'i's public-company base is quickly shrinking. There now are just nine Hawai'i corporations, not counting penny stocks, with shares traded on the major exchanges and significant local business operations.

First Hawaiian Bank, Schuler Homes and Cheap Tickets all were purchased by international or Mainland companies in the past year or so, and the state's traditional industries have provided no major new corporations to replace them.

The decline reflects a global trend toward consolidation in many industries — and the fact that Hawai'i missed out on the technology-led binge of public-company creation in the 1990s.

It may be a good thing that the state created no Enrons and WorldComs. But the dearth of new public companies is still worrisome.

Locally based corporations are major sources of local banking activity, charitable contributions, high-quality corporate jobs and investment dollars. They often place Hawai'i's welfare as their top priority after maximizing shareholder value. With off-island corporations — in which Hawai'i operations are one part of a larger empire — the money still may flow in, but Hawai'i often is no longer at the top of the parent company's list.

The fate of Cheap Tickets shows what can happen when outside ownership takes over. After the online travel wholesaler was bought by franchising giant Cendant in fall 2001, most of its top corporate officers were moved to Cendant's headquarters in New Jersey, and Cendant threatened to move the main Cheap Tickets call center out of Hawai'i unless it received additional tax incentives.

Cendant's actions may not be unreasonable, but the company has placed far less importance on its Hawai'i presence than did Cheap Tickets' co-founder and former chairman Michael Hartley, a longtime Island resident and former member of the University of Hawai'i board of regents.

In filling the gap left by such corporate departures, the technology community could prove vital. It's the only sector of the Hawai'i economy in which entrepreneurial drive, investment infrastructure and government incentives are all geared to create public companies.

The key is that many of the most promising local high-tech firms have received multimillion-dollar venture investments. A major goal of any venture capital-driven company is to create a cash-out opportunity for investors — preferably an initial public offering.

In the late 1990s, when the IPO market was hot, public offerings often generated hundreds of millions of dollars in cash. While today's investing climate is considerably more frigid and few IPOs are being launched, the market is bound to turn around within several years.

If Hawai'i's venture investing community continues at the same pace of recent years — providing money for a handful of promising companies each year — then Hawai'i could have several IPO prospects when the market turns.

Life as a startup tech company subsisting on investor handouts is undeniably difficult, so the next Hawai'i public company may not come from the state's current crop of financed startups such as Hoana Technologies, Hawaii Biotech or Hoku Scientific.

But if even one of them has a moderately successful IPO, it would probably generate tens or hundreds of millions of dollars in cash that would inevitably trickle into the local economy.

And if that happens, the assimilation of Cheap Tickets won't seem like such a tragic affair.

Reach John Duchemin at jduchemin@honoluluadvertiser.com or at 525-8062.