The Dream Makers

Here's the rare Wall Street shop that builds its LBOs around people, not numbers -- and makes a killing in the process

Tweet

IF YOU JUST SORT OF STUMBLED into this place -- admittedly a little difficult since it's on the 30th floor of a skyscraper near Wall Street, but let's say you did anyway -- and you happened to overhear a conversation, you might have a very hard time figuring out whether you were in a "little shop of horrors" rather than a leveraged buyout boutique.

LBO Hotshot #1: "You look depressed. What's the matter -- you break your pick (exhaust every conceivable possibility)?"

LBO Hotshot #2: "Just about. The division looked great -- I mean it was covered with hair (problems concealing opportunities). But the new product they were working on just tanked (failed). They tried all kinds of tweaks and twoks (fine tunings and major adjustments), but they had to put a pin (terminate) in it anyway. It absolutely cratered (messed up royally) their projections."

LBO Hotshot #1: "Guess we'll have to shoot this puppy in the head (reject the deal)."

LBO Hotshot #2: "It's too bad. I thought it could be a screamer (a great investment)."

Good Lord, what manner of men are these? Imagine, little puppies. The fiends.

Fortunately, underneath all this metaphorical mayhem, there lies a far more palatable reality, which, in its own way, is still no less shocking.

The fiends in question are actually six young, rather mild-mannered men, clean cut and listing toward preppy, representing Weiss, Peck & Greer (WPG), a private merchant banking firm. They are: E. Theodore Stolberg, 37; Kim G. Davis, 33; Wesley W. Lang Jr., 30; Stephen L. DeMenna, 34; Peter B. Pfister, 28; and intern Bradford Peck, 25. Despite the tough talk, they have no noticeable inclination toward wanton violence. Quite the contrary, it can even be said they are possessed of a rare and distinctly humanitarian sensibility. Superficially at least, they might be mistaken for any other group of LBO hotshots on the prowl in Wall Street, but that would be a regrettable error since there are a number of important differences.

Rather than focusing on huge deals like a $6.2-billion Beatrice Cos. buyout or a $4.25-billion Safeway Stores transaction, WPG concentrates on small to midsize opportunities with purchase prices generally ranging from $10 million to $100 million. And where many buyout specialists never involve themselves beyond the sheer mathematics of the initial financial leverage, and still others rapidly liquidate the underlying assets to pay down debt, this group attempts to build value through ongoing operating improvements in the portfolio companies themselves.

Finally, and perhaps most surprising, they do this by emphasizing what they call "human motivation" much more than numbers. They believe -- and their results appear to bear them out -- that the buyout must serve a higher calling, which is to nourish the passionate, occasionally miraculous, commitment of employees suddenly become owners. By placing people before figures, they look to create what might be called leveraged buyouts with heart -- an offering not often associated with Wall Street.

"It's beautiful to watch," says Stolberg, the group's founder. "There's a vast ocean of frustrated middle managers out there, and we're helping them become entrepreneurs. It may sound arrogant, but I really think we're dream makers."

Dream makers?

Well, maybe so. After all, look at 43-year-old Robert J. Morrill, now part owner of Microwave Radio Corp., in Lowell, Mass., a manufacturer of portable television broadcast equipment. Twenty years ago, after he got out of the navy, Morrill started up a small roofing business, today recalled fondly as the entrepreneurial bug that bit him. But life, as it will, had different plans, and Morrill spent most of the next two decades working for a huge corporation. Even so, he never gave up on the idea that one day he might still have his own company. In December 1985, he got his chance.

Then a divisional vice-president with M/A-Com Inc., Morrill convinced his employer that it would make sense to let him buy a single product line within that division as part of a companywide restructuring. The line was burdened with various corporate overheads, bruised by an unwieldy and ineffective service department, and excluded from potentially lucrative government business because M/A-Com was too big to qualify for the small-business set-aside program. None of these problems, however, was attributable to any inherent deficiency in an otherwise robust product. So high of heart Morrill, most often in the company of his collaborator, Edward Dahn, an M/A-Com marketing manager, set out on his quest. For six months he wandered around Boston trying to find financing. He saw 20 different venture capitalists, all but one of whom rejected his petition. For some, his projected growth rate of 15% to 20% a year was too slow; for others, his potential market was too small, or his idea fell into an unacceptably murky area somewhere between a bona fide start-up and a de facto refinancing of an existing business.

 1 | 2 | 3 | 4 | 5 | 6  NEXT