Parting Thoughts from an LBO Hotshot

As he prepares to retire from buyout firm Hicks Muse Tate & Furst, Charles Tate takes a moment to mull the outfit's triumphs and flops

A decade ago, Dallas-based private equity outfit Hicks Muse Tate & Furst was barely a blip on the radar screen among the nation's top leveraged buyout firms. But thanks to blockbuster successes like AMFM, Berg Electronics, and Triton Energy, Hicks Muse has emerged as a formidable rival to the industry's top players, including Kohlberg Kravis Roberts & Co. (KKR) and Forstmann Little & Co.

Headed by Thomas O. Hicks, who also owns the Dallas Stars professional hockey team and Major League Baseball's Texas Rangers, Hicks Muse's success came at the hands of an investing strategy it pioneered called "buy-and-build." The firm employed the strategy by using a core acquisition, say, a food company, as a platform to acquire other related businesses. Since its formation in 1989, Hicks Muse has completed, or has pending, more than 400 transactions with a total capital value of about $50 billion.

In 1999 and 2000, in a controversial departure from its buy-and-build strategy, Hicks Muse plunked down more than $1 billion to buy minority stakes in several telecom ventures, most of which have since gone sour. Indeed, investments like ICG Communications, Teligent, Rhythms NetConnections, and Viatel have all ended up in bankruptcy proceedings. These days, after that unsuccessful foray into telecom, Hicks Muse is refocusing on its back-to-basics, buy-and-build strategy, investing in industries it knows well, such as food and manufacturing, that once brought it reliable returns.

With the rebuilding effort under way, on Mar. 6, partner Charles W. Tate, 57, announced plans to retire effective June 30. After joining the firm in 1991, Tate played a key role in its growth, success, and global expansion. In the early '90s, he set up a New York office in an effort to create a better relationship with Wall Street's investment bankers. A member of Hicks Muse's management committee, Tate will continue to represent the firm as a board member with respect to four of its investments, including Emergent Genetics and International Wire Group.

Hicks says Tate first mentioned his desire to retire two years ago. "But reflecting his dedication and professionalism, he agreed to stay on as we worked to restore our strategic focus on back-to-basics, buy-and-build investing," says Hicks. "With that process now completed, Charles has decided the time has come to complete his career at the firm, which will honor his many contributions by continuing to bear his name." On Mar. 6, in an exclusive interview, BusinessWeek Dallas Correspondent Stephanie Anderson Forest spoke with Tate about his retirement. Following are edited excerpts from their conversation:

Q: After nearly a decade with Hicks Muse Tate & Furst, why are you retiring at this time?


At 57 years old, I have a lot of energy, and I want to go on and do something else interesting and challenging, though I can't say yet what that is. I've really had only two jobs in my life: First, for 19 years at Morgan Stanley [for most of that time he worked in the firm's mergers and acquisitions department, for the last last two-and-a-half years as a managing director in its merchant-banking area] and then, since 1991, here.... So it's time to take on another challenge. I'm retiring from Hicks Muse, not from my career.

Q: You were in charge of the New York office of Hicks Muse for many years, correct?


My initial role in the firm was to open the New York office in June, 1991.... We wanted to redefine how a private equity firm related to Wall Street. I grew up in Morgan Stanley and had a pretty good understanding of how LBO firms dealt with Wall Street. It was very confrontational. We wanted to pursue a different strategy. We wanted there to be a very natural dialogue between Wall Street and our firm. [At that time Hicks Muse was not a household name in the LBO business and needed the New York office to help make a name for itself.]

Tom Hicks had had success with [Dallas-based investment firm] Hicks Haas before that, but Hicks Muse wasn't really well known. [Back then], under no circumstances would our name be mentioned in the same sentence with KKR, Fortsmann Little, and others.

Q: Did you accomplish your goal of creating a better dialogue with Wall Street?


I think so. We made a conscious decision not to be confrontational with Wall Street, because we believe that, ultimately, this business is about relationships. And Wall Street is an important source of deals for people in this business.

Q: What would you identify as some of your greatest accomplishments, deal-wise, at Hicks Muse?


We have tried always to not have any individual partner take credit for any deals. If it's not a unanimous decision, we don't go forward with it. We do firm deals, not individual deals. But there are some deals that I have been involved with more than others. They include: Berg Electronics, International Home Foods, and International Wire [which Hicks Muse still owns]. It's also only fair to say that I've been involved in some less successful ones, like G. Heileman Brewing [a 1994 acquisition that went bust two years later, costing the firm nearly all of its $61 million investment].

Q: Were you directly involved in any of the telecom ventures?


No, I didn't work directly on those, but as I've said, we do deals as a firm. Those were all firm deals, so I share in the cumulative guilt [about the failure of many of those deals].

Q: So, your retirement has nothing to do with the soured telecom investments?


No. Not at all.

Q: Besides continuing to serve on the boards for some of the Hicks Muse companies, what else will you be doing in the near future?


I'm active in couple of committees at M.D. Anderson Cancer Center [in Houston, where Tate lives].... [And] I'm a member of [Texas] Governor Rick Perry's new Council on Science & Biotechnology.... Both of those will keep me busy well into September.

Edited by Beth Belton

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