Going Private

Last year a record 90 companies were bought out of corporate empires. When Walter Lovejoy cut loose from Beatrice Foods with his little mold-making company tucked under his arm, he was rekindling the entrepreneurial spark that he had always preferred.

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For Beatrice Foods Co. in Chicago the divestiture last May of A-1 Tool Division, a small mold-making company in nearby Melrose Park, was an adjustment, a shift in its assets dictated by a recession and a change in its corporate strategy. For Walter R. Lovejoy, the man who bought A-1, it represented, quite literally, the chance of a lifetime.

Lovejoy, who had headed Beatrice's Industrial Division, overseeing A-1 and 35 other profit centers, is a new breed of entrepreneur, one of a growing number of management buyout owners. Like Raymond V. Haysbert Sr., of H. G. Parks Inc., Baltimore, C. Hugh Fletcher, of U.S. Repeating Arms Co., New Haven; and the presidents of dozens of other recently liberated companies, he is benefiting from the latest theory of business building. of the go-go conglomerates, big was beautiful. It was believed that owning a large number of diversified companies made for financial security -- when one area was down, others were up. But subsequent developments have bared flaws in that theory. The downturn in the economy affected too many segments, management found it difficult to steer steel mills and soft-drink companies at the same time, and stock analysts shied away from the chore of evaluating broad diversity.

Now, or so the new theory goes, it is better to confine one's attention to a few lines of business and sell off the misfits. The recession, which has created extraordinary cash demands on many corporations, has accelerated the process. The resulting trend, which may continue through the end of the decade has been dubbed "deconglomeration."

During the past two years, while major mergers have continued to occur and to grab headline space (U.S. Steel and Marathon Oil, Du Pont and Conoco), divestitures have offset acquisitions. "The relative size of the country's largest corporations has not been growing," notes Lawrence J. White, director of economic policy in the Justice Department's Antitrust Division.

More and more frequently, the purchasers have been the men or women who ran a division, and, increasingly, the deal of choice has been the leveraged buyout, in which the buyer uses a company's assets to obtain large loans. W. T. Grimm & Co., a Chicago-based merger broker that tracks such transactions, reports that the number has nearly doubled since 1978. "There were 49 that year," says research director Tomi Simic. "We've spotted 90 through the first two weeks of November '82."

Banks and insurance companies like the arrangement because they lend above prime rate and are dealing with seasoned executives, rather than the fresh faces that characterize venture capital deals. "We take a financial risk, but, hopefully, not a business risk," says Leonard Shaykin, head of Citicorp's leveraged buyout unit, one of the few departments of its kind in the country. Citicorp has committed $100 million in capital to the cause, while the Prudential Insurance Co. of America has a reported $1 billion in its buyout portfolio.

Businesspeople such as Lovejoy, who have spent many years laboring on a corporation's behalf, love deconglomeration and the management buyout: It gives them serious equity in a company they might otherwise not be able to afford, and it frees them to pursue their own destinies

"It's a great feeling," says Lovejoy, relaxing behind a handsome desk in his Oak Brook, Ill., office. From the windows of the luxurious third-floor suite, he has a clear view of the building where Beatrice Industrial Division has its headquarters. When he made the move to business independence, he brought along not only A-1, but two other Beatrice companies as well -- Acme Die Casting and Artistic Texturing -- plus a few pieces of furniture.

"They consolidated and moved out of some offices, so I bought a few things," he explains, gesturing toward an expensive table and some chairs. In one swoop, Lovejoy became a conglomerate -- Lovejoy Industries Inc.

For Lovejoy, still ambitious and fiercely independent at age 54, the move was probably inevitable. A third-generation toolmaker, he joined A-1 in 1948 after graduating from technical high school, but he left after a year because he found it difficuIt to take orders from his supervisor. Norman Sauey, who had founded A-1 in 1946, called him back in 1950, and, four years later, offered the presidency to the "aggressive and bright young lad."

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