The Return of a Dealmaker
Ever since Connecticut's treasurer filed suit two years ago against Forstmann Little & Co., charging the firm with breaching obligations to its investors, Wall Street has been buzzing with speculation: Would Theodore "Ted" Forstmann, founder of his famous buyout firm, ever do another deal? Forstmann put the suit behind him on Sept. 20, agreeing to pay Connecticut $15 million to drop its appeal of a state jury ruling that awarded no damages.
And on Sept. 30, he did a big deal, announcing that the firm will buy a high-profile Cleveland-based sports-management and talent agency for approximately $750 million. IMG represents celebrities ranging from Tiger Woods and John McEnroe to Elizabeth Hurley and Liv Tyler. Forstmann, 64, told BusinessWeek Online that more deals are in his future, but he won't be raising another fund. BusinessWeek Money & Banking Editor Emily Thornton caught up with Forstmann shortly after announcement of the IMG deal. Here are edited excerpts from their conversation:
Q: Why IMG? A:
Q: Why IMG?
A:I'm a fiduciary for pension funds. When you look at a business, you have to make a judgment as to the risks associated with acquiring it and the potential rewards or returns. We felt very strongly that the risks associated with this business were low and the rewards can be substantial. That's a big deal. On top of that, it's a great business.
Q: How did you manage to be the selected buyer? A:
Q: How did you manage to be the selected buyer?
A:We uniquely can make an offer. We don't use public debt, and we don't need to use bank debt either. We can make an offer, which we did, that was totally certain. We had no financing conditions. We simply said to the trustees: "If you accept it, it's done." Other people can't do that.
Q: How do you hope to create value? A:
Q: How do you hope to create value?
A:This is a very well-recognized worldwide brand. These guys have been at it a long time, and they're very good at what they do. There are opportunities for growth in a number of things that they have. They're known for their representational business because they're dominant in what they do.
Q: Speculation has it that this is your last deal. Is it? A:
Q: Speculation has it that this is your last deal. Is it?
A:Do you know something I don't know? Why is it my last deal? There's still about $1.5 billion left [in Forstmann Little's funds to invest]. That buys a lot of golf balls.
Q: Is there a possibility that you will raise a new fund? A:
Q: Is there a possibility that you will raise a new fund?
A:No. It is absolutely not my intention to raise another fund.
Q: Why is that? A:
Q: Why is that?
A:Oh boy. That would take more time than we have. There are a lot of reasons.
Q: How does IMG fit into Forstmann Little's master plan? Will you make more acquisitions in this industry in the future? A:
Q: How does IMG fit into Forstmann Little's master plan? Will you make more acquisitions in this industry in the future?
A:I don't have a master plan. It's very hard to find businesses where you think the risks are low and the potential for rewards is high if you do the right thing. When we find something we're interested in, we're able to put a capital structure in that has a great deal of safety in it.
[IMG] has been running a business and dealing with banks. They've been going in two or three different directions. Now they have the capital structure of a solid company, and they don't have to worry about that stuff at all. There isn't even a bank involved in this. We can look at all of the aspects of the business, invest where we should, consolidate where we should, and take this company to the next level.
Q: What role will you play in the company? A:
Q: What role will you play in the company?
A:We're going to be partners. I'm going to be helpful where I can be. One thing I know I can do right away is put together a [world-class] board of directors. [The management team] will get a lot of help and input that wasn't there before.
Q: Will the headquarters remain in Cleveland? A:
Q: Will the headquarters remain in Cleveland?
A:Oh yes. There's no reason not to.
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