Forstmann Little & Company

Last updated
Forstmann, Little & Company
Type Private ownership
Industry Private equity
Founded1978 [1]
Founder Ted and Nick Forstmann and Brian Little
Defunct2015 (2015)
Headquarters New York, New York, United States
Products Leveraged buyout, Growth capital

Forstmann, Little & Company was a private equity firm, specializing in leveraged buyouts (LBOs). At its peak in the late 1990s, Forstmann Little was among the largest private equity firms globally. Ultimately, the firm would suffer from the bursting of the internet and telecom bubbles, having invested heavily in technology and telecommunications companies. [1] Following the death of the last surviving founder, Theodore Forstmann, in 2011, the firm was dissolved and its assets sold off. It closed in May 2014. [2]

Contents

History

Ted Forstmann was a golfing partner of Derald Ruttenberg at the Deepdale Country Club on Long Island. He arranged for Ruttenberg to meet Henry Kravis and Jerry Kohlberg of the start-up Kohlberg Kravis Roberts. Kravis and Kohlberg proposed what they called a leveraged buyout. After the two had left, Ruttenberg suggested that Forstmann could do the same himself. Ruttenberg arranged funding for Forstmann, who launched Forstmann Little & Company in 1978. [3] The company was founded by brothers Ted and Nick Forstmann, and Brian Little. [4] With the deaths of Brian Little and Nicholas Forstmann in 2000 and 2001, [5] respectively, Ted Forstmann was the chief partner. A third brother, J. Anthony Forstmann, is a limited partner in the firm.

Between its inception in 1978 to its 2014 closing, the firm made more than 30 acquisitions and significant investments returning over $14 billion in profit for its investors.

Successful acquisitions included Gulfstream Aerospace, Topps Playing Cards, Dr Pepper, Stanadyne, and General Instrument. [6] The company was usually successful in making a profit on such purchases, selling Gulfstream to General Dynamics, and General Instrument to Motorola. In the case of Gulfstream, Ted Forstmann took direct control of the financially ailing company's day-to-day operations to improve the company's attractiveness to a potential acquirer. [7]

The company has also had some flops, such as McLeodUSA and XO Communications. In 2002, the state of Connecticut sued Forstmann, Little & Company to recover $125 million in losses associated with investments in these two telecom companies, citing negligence and breach of contract. [8] While Forstmann settled the case for $15 million, the suit was considered a landmark, launching a series of similar actions between private equity fund managers and public entity investors. [9]

One prominent episode in the life of the company was the 1988 bidding war for RJR Nabisco. Forstmann Little offered to acquire RJR Nabisco, but the management (chiefly F. Ross Johnson) instead chose Shearson Lehman Hutton. In the end, the board of directors chose Forstmann Little's arch-rival, Kohlberg Kravis Roberts & Co. The episode was popularized in the book Barbarians at the Gate: The Fall of RJR Nabisco .

Other headline transactions the firm participated in include Revlon (1985), which resulted in the so-called Revlon Duty, and Citadel Broadcasting, of which Forstmann Little owns 27%, following a merger with ABC Radio in 2006. In 2004, Forstmann Little acquired IMG in a $750 million deal, [10] and in 2005 bought 24 Hour Fitness for $1.6 billion. [11]

Dissolution

In 2011, Theodore Forstmann, the last surviving founder, died of brain cancer. [7] The law firm Akin Gump Strauss Hauer & Feld dissolved the firm by selling off its assets. [6] IMG was sold in 2013 for $2.3 billion to William Morris Endeavor. [12] The last asset to be sold was 24 Hour Fitness, which was purchased for $2 billion by AEA Investors. [6] [13]

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Leveraged buyout Acquired control over a company by the purchase of its shares with borrowed money

A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. The use of debt, which normally has a lower cost of capital than equity, serves to reduce the overall cost of financing the acquisition. The cost of debt is lower because interest payments often reduce corporate income tax liability, whereas dividend payments normally do not. This reduced cost of financing allows greater gains to accrue to the equity, and, as a result, the debt serves as a lever to increase the returns to the equity.

Private equity (PE) typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies. More formally, private equity is a type of equity and one of the asset classes consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange.

RJR Nabisco, Inc., was an American conglomerate, selling tobacco and food products, headquartered in the Calyon Building in Midtown Manhattan, New York City. RJR Nabisco stopped operating as a single entity in 1999; however, both RJR and Nabisco still exist.

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Theodore Joseph Forstmann was one of the founding partners of Forstmann Little & Company, a private equity firm, and chairman and CEO of IMG, a global sports and media company. A billionaire, Forstmann was a Republican and a philanthropist. He supported school choice and funded scholarship programs for the disadvantaged. He led a tour of refugee camps in the former Yugoslavia.

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Kohlberg & Company American private equity firm

Kohlberg & Company is an American private equity firm that focuses on leveraged buyout transactions. Founded by investor Jerome Kohlberg, Jr., the firm invests in a variety of transactions including leveraged carveout, take-private transactions, and acquisitions of privately held companies.

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Derald Ruttenberg American lawyer (1916–2004)

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References

  1. 1 2 "Company Overview of Forstmann Little & Co". Bloomberg Business. March 1, 2015.
  2. ↑ "Forstmann Little & Co.: Private Company Information - Bloomberg". www.bloomberg.com. Retrieved 2017-07-14.
  3. ↑ Burrough, Bryan; Helyar, John (2009-10-13). Barbarians at the Gate: The Fall of RJR Nabisco. HarperCollins. pp. 239–240. ISBN   978-0-06-180403-8 . Retrieved 2013-10-29.
  4. ↑ Sorkin, Andrew Ross (2001-02-03). "Nicholas C. Forstmann, 54, Buyout Firm Partner, Dies". The New York Times. ISSN   0362-4331 . Retrieved 2017-07-14.
  5. ↑ Sorkin, Andrew Ross (2001-02-03). "Nicholas C. Forstmann, 54, Buyout Firm Partner, Dies". The New York Times. ISSN   0362-4331 . Retrieved 2021-10-15.
  6. 1 2 3 Hammond, Ed (April 2, 2014). "Forstmann Little closes in on $2bn sale of 24 Hour Fitness chain". Financial Times.
  7. 1 2 Cohen, Rich. "The Unwritable Memoirs of Teddy Forstmann: How the Billionaire Treated His Ghostwriters". The Hive. Retrieved 2017-07-14.
  8. ↑ Litigation: A growing risk factor for private equity, Private Equity Newsletter, September 18, 2007.
  9. ↑ Goodbye to all that, New York Times, October 10, 2004.
  10. ↑ Sandomir, Richard (2007-01-12). "Forstmann Is Leader of the Pack at IMG". The New York Times. ISSN   0362-4331 . Retrieved 2017-07-14.
  11. ↑ Peltz, James F.; Williams, Erica (2005-05-04). "Forstmann Works Out Deal to Acquire 24 Hour Fitness". Los Angeles Times. ISSN   0458-3035 . Retrieved 2017-07-14.
  12. ↑ "Forstmann Little Reaps $2.3B In Sale Of Talent Agency IMG - Law360". www.law360.com. Retrieved 2017-07-14.
  13. ↑ Dezember, Ryan (2014-05-30). "Forstmann Little Winds Down With 24 Hour Fitness Sale". Wall Street Journal. ISSN   0099-9660 . Retrieved 2017-07-14.
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