The Man Trying to Buy American IdolBy and
For the past two decades Alec Gores has thrived by acquiring companies—usually mid-size tech businesses—improving their operations, and selling them at a profit. Now Gores is striking out in a different direction. On Mar. 23, The Gores Group, his private equity firm, made an unsolicited offer for CKX, the company that controls the rights to American Idol, according to a person with knowledge of the bid.
Sitting in his 18th-story office in the Westwood section of Los Angeles, Gores, 58, won't discuss the CKX bid. He does say that the skills he has developed turning around technology companies can be applied to other industries. "We know how to restructure a company, how to make companies operate better," he says. Gores, who raised $2 billion for new investments two months ago, says he also has his eye on a well-known fashion company, which he will not name.
CKX isn't his first foray outside tech. Gores paid $100 million for a majority stake in radio syndicator Westwood One in 2008. Last year he teamed up with his 46-year-old brother Tom, who runs his own private equity firm, Platinum Equity, on an unsuccessful bid for movie studio Miramax, producer of Shakespeare in Love. A third brother, Sam, 56, who owns Paradigm, a talent agency in Beverly Hills, provided advice on that bid. Gores Group made its first investment in the fashion business last year, buying a stake in J. Mendel, the maker of furs sold by high-end retailers, for an undisclosed price.
An Israeli-born Christian, Gores moved with his family to Flint, Mich., when he was 15. Working three jobs, he put himself through Western Michigan University, graduating with a degree in computer science. He began customizing software for friends, family members, and other clients, eventually building a company that he sold for $2 million in 1986. With that stake he launched his private equity career, founding Gores Group, then known as Gores Technology Group, in 1987. His first targets were small companies that Gores says he restructured by instituting some of the practices he had learned from his software clients.
The Gores "model," as he describes it, is to buy "orphan" divisions from large companies that don't want to devote the time or resources to fixing them—then quickly streamline operations, usually with layoffs and other cost-cutting measures. He describes his approach as low risk. "I don't make vanity deals," he says.
In 2007, Gores paid $100 million for a unit of Tyco Electronics that makes power supplies for computers and other equipment. He brought in new managers, cut prices on some products by improving the supply chain, and stepped up customer service. Within 18 months, the on-time delivery rate at the company, now named Lineage Power Holdings, went to 90 percent from 50 percent. In January, Gores sold Lineage to General Electric for $520 million.
Over the past 25 years, Gores has sold 32 companies, with participants in his funds earning 4.4 times their investment from the deals, he says. Including unrealized gains, his funds rank in the top 25 percent of private equity funds tracked by Preqin, a research firm based in London. Gores Group currently owns 70 companies worth a combined $4 billion.
Just because he's chasing after Steven Tyler and Randy Jackson doesn't mean Gores has lost his taste for tech. Gores Group and Platinum Equity are trying to buy a majority stake in telecom-equipment maker Nokia Siemens Networks, according to people with knowledge of the Gores' intentions. If the bid succeeds, Gores would combine the company with Siemens Enterprise Communications, which he bought in 2008. TPG is also bidding for Nokia Siemens, according to the same people. "We stated last summer that we've been approached by a handful of private equity firms," says Nokia Siemens spokesman Ben Roome. "We don't have any update."
CKX, which also controls Elvis Presley Enterprises, owner of the rights to the singer's name, image, and likeness, rebuffed takeover offers last year, including one from former CEO Robert F.X. Sillerman. CKX did not respond to requests for comment. If Gores succeeds, his knack for turning companies around will face a new test. "Entertainment and fashion are higher-risk industries as consumers' tastes are harder to figure out," says Steve Kaplan, a professor of finance and private equity at the Chicago Booth School of Business. "But some billionaires can't resist the attraction of the limelight."
The bottom line: Gores, who has recently raised $2 billion for deals, is broadening his reach from tech to fashion, retail, and media.