Manager Without A Company;

 

Charles P. Gallagher is nearly bald, which may explain why he loves fixing companies with "hair," which in turn definitely explains why the Weiss, Peck & Greer buyout team loves Charlie Gallagher.

"When it comes to revitalizing tired assets in a variety of different businesses," says Kim Davis, a leveraged buyout specialist with Weiss, Peck & Greer, "Gallagher's the best CEO I've ever seen."

So good, in fact, that the team backed the 49-year-old management wizard for nearly a year and a half despite the fact that all that time, the redoubtable Mr. Gallagher didn't even have a company to manage.

When Davis first met the man, Gallagher was engineering a spectacular turnaround as president and chief executive of publicly held Susquehanna Corp. Gallagher wanted to sell Davis one of Susquehanna's business units. Davis thought the business was a dog and declined, but he was rather more impressed with Gallagher's overall accomplishments at Susquehanna. In 1980, when Gallagher arrived on the scene, Susquehanna, a manufacturer of various building materials, had been sorely battered by the cyclical nature of the building industry. That year, the company reported an operating loss of $14.2 million on revenues of $110 million, and its book value per share was a negative $2.80. Five years later, though, after Gallagher had cut staff, closed plants, and excised nearly $40 million in unprofitable products, Susquehanna reported a profit of $14 million, and its book value per share had risen to $6.

Shortly afterward, Gallagher resigned, intent on doing for his own account what he had just done for Susquehanna. He set up an office in Denver and set out to buy a company in which his own equity position would profit directly from his turnaround talents. In the process, he interviewed several investment bankers. He chose the buyout team at Weiss, Peck & Greer.

"They were more creative than the others," says Gallagher. "They were aggressive without being reckless, and they brought a lot of diversified experience to the deal. It was definitely a collaborative effort."

Between June 1985 and October 1986, Gallagher and the team looked at more than 100 companies until they acquired the industrial products division of International Minerals & Chemicals Corp. in a leveraged buyout worth an estimated $100 million. Once again, Gallagher, now CEO and owner of an enterprise renamed Applied Industrial Materials Corp., performed prodigies of turnaround artistry. He recharged a weary mix of mineral, metal, and carbon products and nearly doubled gross margins to the point at which his new company earned $18 million on some $400 million in sales. What's more, in only eight months, Gallagher paid off the entire $90-million debt load used to finance the buyout in the first place.

The WPG team, however, saw more to Gallagher than numbers. They also saw the mother lode of "emotional equity."

By way of explanation, WPG's Ted Stolberg offers the following tale. In the fall of 1986, Gallagher had planned a trip with the team that would include visits to nearly 20 different plants owned by the division in question. The trip was crucial to Gallagher's understanding of the business. Just before he was about to leave, he developed an excruciating crick in his neck. Not wanting to change his plans, Gallagher consulted a number of medical experts. He brought along various remedies, ranging from portable traction equipment to what one team member remembers as "Spanish radish root pills" of a size that seemed better suited for horses than people.

On the road, Stolberg and Davis watched in awe each day as Gallagher swallowed the giant tablets. And they were no less fascinated by the large chain Gallagher had taken to wearing around his neck, the better to realign certain bodily magnetisms that might relieve his discomfort. But the most incredible demonstration of Gallagher's commitment to the buyout effort always took place after dinner. Every evening, the group would sit together in Gallagher's hotel room and discuss the day's events. Gallagher, however, observed the proceedings from an unusual vantage point: he sat in a chair in the middle of a doorway with his neck, stretched in self-inflicted traction, attached to a cord attached to a heavy water bottle dangling from the doorjamb above. Only after the plant fly-around was over did Gallagher have the time to get proper treatment for his crushed vertebra.

"I'd like to say it was more complicated," Davis says, "but the simple truth is that we just wanted to put some assets behind this guy. You can see why, can't you?"