The Herald-Sun from Durham, North Carolina • A6

6A SATURDAY MAY 19 2018Business HERALDSUN.COM FACEBOOK.COM/THEHERALDSUN TWITTER.COM/THEHERALD_SUN MARKETS 24,715.09 Dow Jones 2,712.97 500 12,717.38 NYSE 7,354.34 Nasdaq COMMODITIES $1,290.30 Gold $71.28 Crude oil DearMr. Berko: Please explain to me what a busi- ness development compa- ny is and how it works. Also, my brother, who is a certified public accountant, has recommended that I buy 1,000 shares of Main Street Capital. What do you think? SP, Fort Lau- derdale, Fla. Dear SP: Business de- velopment companies were initiated by Congress in 1980.

The goal of BDCs is to encourage the flow of public dollars (your in- vestible funds) to private businesses. Generally, BDCs invest at least 70 percent of their cash in private U.S. companies or in public U.S. companies with market values of less than $250million. And these BDCs must send quarterly, as well as an- nual, reports to the Securi- ties and Exchange Com- mission and to their share- holders.

Owning a BDC (only 55 are publicly trad- ed) allows shareholders to have their cake and eat it, too. They enjoy the liq- uidity of a publicly traded stock while participating in the potential profit of pri- vate companies. A BDCmust qualify as a regulated investment com- pany under Subchapter of the Internal Revenue Code; distribute 98 percent of its ordinary income and 98 percent of net capital gains for one year; derive at least 90 percent of gross income from dividends, interest and capital gains; have no more than 25 percent of their assets invested in the securities of one company or two or more issues that are en- gaged in the same or simi- lar business activities, limit its debt-to-equity ratio to 1-to-1 or less, and revalue its private investments every quarter. Like real estate invest- ment trusts, BDCs are not taxed at the corporate level, as long as they pay out the required income to shareholders. This avoids double taxation and allows BDC investments to pay higher dividends than common stock.

But a string attached, because a large percentage of a cash distribution is considered ordinary in- come and is taxed at the higher tax rate (33 percent to 39.6 percent) rather than the 15 percent rate for qualified dividends. For this reason, it makes good sense to own BDC investments in an individual retirement ac- count, where distributions are deferred, or in a Roth IRA, where exempt from taxation. Your a smart lad. I like his recommenda- tion of Main Street Capital which spe- cializes in long-term equity and debt investments primarily in small- and lower-middle-market com- panies. This is a classy BDC.

MAIN primarily invests in the Southern and Southwestern regions of the U.S. Management typically invests between $2 million and $75 million in equity and between $5 million and $50million in debt with companies that have revenues between $10 million and $150 mil- lion and an EBITDA or earnings before interest, taxes, depreciation and amortization of $1 million to $20million. Manage- ment usually requires a fixed interest rate between 12 and 14 percent. And these investments are typically in the form of secured debt and equity participation and often- times the equity participa- tion can be a very attrac- tive kicker. man- agement likes to make loans to well-established family-run businesses that need financing for foun- ders who want to pass their companies to heirs.

loans are highly collateralized. And rising interest rates may not affect MAIN as they will other BDCs. Rather, they will increase earnings, because 72 percent of loans have floating rates. MAIN has a better re- cord than most BDCs. Compared with its peer companies, it has impres- sive operating margins of 83.5 percent, a 5.1 percent return on capital and a 35 percent cash flow, which are nearly twice those of its competitors.

Since 2010, revenues and net income have grown fourfold, and the dividend has doubled. MAIN currently pays a monthly dividend of 19 cents a share, plus a 27.5- cent semiannual dividend. Total 2017 payout was $2.83, making for a very acceptable yield of 7.5 percent. And 2018 is look- ing better than any year in history, so expect a nice dividend increase. Listen to your brother.

Send questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at TAKING STOCK Business development companies, Main Street Capital are good bets BY MALCOLM BERKO Creators Syndicate RALEIGH A Raleigh software company that banks lean on to help them make lending and loan-portfolio decisions has a new own- er, a California private- equity investor that com- pleted the purchase this week. The sale of Sageworks came about because its co-founder, Brian Hamil- ton, wants to step away from the company and focus on his nonprofit Inmates to Entrepreneurs. The new owner, Accel-KKR, made a good offer and convinced Ha- milton a cultural match between what they do and what we he said. Accel-KKR plans keep most, if not all, the employees we including Sageworks CEO Scott Ogle, Hamilton said.

going to be business as Founded in 1998, Sage- works employs close to 400 people and counts more than 1,200 U.S. banks and credit unions as customers, along with thousands of accountants. Its first software pack- age, ProfitCents, was designed to automate and simplify the process of breaking down a set of financial statements. The company has since branched out into the loan-analysis business. Sageworks has another eight to 10 new software products in its develop- ment pipeline and figures to remain both cash-flow positive and in a growth mode after the acquisi- tion, Hamilton said.

Meanwhile, nonprofit work has fo- cused on helping prison inmates learn business skills so they can start small enterprises once they get out. He said to put a lot more into that as a passion of mine the last couple of Accel-KKR, based in Menlo Park, California, has about $4 billion in- vested in various compa- nies. It focuses mainly on the tech sector, particular- ly on business-to-business services. It acquired 100 percent of Sageworks, and made the deal about a month after buying a Maryland company called Salsa Labs that provides marketing software to nonprofit groups. As was the case there, terms of the pur- chase of Sageworks disclosed.

Both Sageworks and Accel-KKR are private companies. Sageworks is the fruit of a collaboration that began at Duke University and flourished, Hamilton said, because the Triangle has lot of resources avail- able (for tech startups) that you do not have in other parts of the coun- Ray Gronberg: 919-419-6648, Private equity firm acquires Sageworks BY RAY GRONBERG News Observer file photo Sageworks founder Brian Hamilton, shown teaching a class on entrepreneurship at Eastern Correction Institution in 2009, has sold his firm and will now focus on his nonprofit Inmates to Entrepreneurs. MORRISVILLE If flying in or out of Raleigh-Durham In- ternational Airport on the morning of Monday, June 4, you might catch a glimpse of NASCAR le- gend Dale Earnhardt Jr. in the terminal. Earnhardt will be at RDU to celebrate the opening of his namesake restaurant, Dale Earn- hardt Whisky River, which began serving customers at the end of Con- course in Terminal 2 in March.

The RDU restaurant is the third Whisky River, after the original at the EpiCentre in downtown Charlotte and a second at Charlotte Douglas International Airport, which opened in 2015. Earnhardt also plans to open a Whisky River in North Myrtle Beach, S.C. partner in both airport restaurants is HMSHost, which already operates most of the eat- eries in the terminals at RDU. Whisky River is the first restaurant at RDU to include a stage for live music. The details of Earn- visit have not yet been released.

But airport officials say he is expected to appear only in the ter- minal, beyond the security checkpoint, so only passengers with airline tickets will have any chance of seeing him. Earnhardt, 43, retired from NASCAR racing last fall, ending a career that began when he was 17 and earned him Most Popular Driver Award 15 years in a row. father, Dale Earnhardt was 49 when he was killed in a crash in the final lap of the Daytona 500 in 2001. Whisky River is part of an overhaul of retail at RDU that includes 15 new shops opening this year, including a Vineyard Vines, a TripAdvisor travel store and a duty-free shop. Richard Stradling: 919-829-4739, FILE PHOTO Dale Earnhardt Whisky River opened at Raleigh-Durham International Airport in March.

Dale Jr. coming to RDU to officially open his restaurant BY RICHARD STRADLING Dale Earnhardt Jr. TOKYO After months of taking hits from the United States over North Korea policy and trade, Japan has decided that it will only be pushed so far and is threatening to punch back. On Friday, Japan noti- fied the World Trade Or- ganization that it was reserving the right to im- pose retaliatory tariffs against the United States in response to tariffs on steel and aluminum im- ports proposed by Presi- dent Donald Trump. Japan has not filed a formal complaint with the WTO but is signaling that it could impose the measures if it does not gain tariff exemptions that it has been seeking fromWashington.

For Japan, where Prime Minister Shinzo Abe has worked hard to cultivate a close relationship with Trump on the golf course and over the telephone, the preliminary notice to the WTO was symbolically significant. Until now, Japan has sidestepped any confronta- tion with the United States, even after it was the largest American ally to be left off a list of countries granted temporary exemptions from the steel and aluminu tariffs in March. is Japan basically readying itself for a trade said Jeffrey Wilson, a research fellow at the Perth USAsia Center at the University of Western Australia. is saying, Japan can say no to the United Ministry of Economy, Trade and In- dustry said it would de- cide whether to impose counter tariffs on the U.S. carefully examining the U.S.

relevant measures and their impacts on Japa- nese Japan says it reserves right to impose own tariffs against US BYMOTOKO RICH New York Times.