Philip Greer, the founding partner, first heard about the company at a dinner party and later mentioned it to team member Steve DeMenna, who paid Morrill a visit. The results of that initial contact got Morrill and his partner, Edward Dahn, an invitation to the firm's New York office for a more extensive irradiation under the Screen's illuminating glow. Morrill might even have experienced a slight electrical tingling as he approached the conference room where the associates had assembled, in effect already adjusting the sensitive controls of their instrument.
Even at the most elemental level, Morrill's deal met two important criteria. First of all, although M/A-Com's asking price of roughly $3 million placed the proposed buyout a bit under the group's favored range, it nonetheless shared the intent of their overall strategy. Buyouts with purchase prices under $100 million, the team has found, generally attract far less attention than monster undertakings and are, as a result, more realistically priced; they require fewer layers of financing and thus can be completed quickly; and they are small enough that the new management can have a noticeable and immediate impact on operations. "Also," Davis adds, "in huge deals you don't have the time or the setting to really understand in every business unit what the human-motivation factors are. You do the numbers and pray every Sunday that the human stuff is right."
Second, Microwave was the right type of deal -- a product line within a division rather than an entire company. As a rule, the team avoids company buyouts in which the original owners cash out and go home because the second-line management's understanding of the business is often underdeveloped. The value of this particular observation was reinforced not long ago when the group acquired, for $20 million, Superior Manufacturing & Instruments Inc., based in Long Island City, N.Y. Here the original owners had aged to the point where they were more interested in personal liquidity than in running a business. After they cashed out, the new management team decided to expand by developing a line of sophisticated high-voltage power supplies. Unfortunately, after signing several large contracts, management discovered they did not have the operational depth to perform, particularly in engineering. "We disappointed a lot of people," says Stolberg. "I badly underestimated how much the old president knew about the business. I should've involved him more and put him on the board, but I didn't and so we broke our pick." The lesson was more than merely academic. According to Stolberg, the team's initial $2-million equity investment is now worth only half as much, the only loser in the entire portfolio.
But back to Morrill. After the first coarse sweep, the group turned up the dials for a more detailed look at three major areas: management, company operations, and the financial structure of the deal itself. Of the three, the quality of management is by far the most important. "The biggest problem a deal will face," says Stolberg, "is can the divisional manager make the transition to becoming president of an independent company and do that under leverage. You know, it's very difficult betting on people. That's the art of this business." It is also its greatest risk. Over the years, the team has put together a Rogues' Gallery of Undesirable Management Types, any one of which will cause the Screen to crackle ominously.
First, there is the general manager in a large corporation who has several business units reporting to him and takes on delusions of grandeur. "This is a little tricky," Stolberg says, "because a guy like that will always say to you, 'I'm responsible for $400 million in revenues,' or 'I run four businesses.' But after some probing you find out that all he's got is a monitoring role. He's not an operating guy; he's a group 'staffee."
Next consider the general manager who actually does have operating responsibility -- but no guts. "He says everything he thinks you want to hear," says Steve DeMenna, "but pretty soon you'll find out that he doesn't really want to take a risk and invest his money. He really wants a teed-up deal -- 20% of the company for nothing, a big salary and a bonus, a country club membership, and a car."
From Wes Lang comes a description of yet another classic type -- the general manager who thinks he's a chief executive officer but always needs strong direction. "This is the guy who can't make decisions on his own," Lang says. "He needs the consensus of a president and a board of directors. If you do his deal, you'll get a phone call from him every other day saying that he's got a problem at the plant or this machine's not working and what do you think. He doesn't put the bit in his mouth."
And finally, there's the manager whose ethics are a little loose. "This one manager was bidding on his own division," Stolberg recalls, "but at the same time the parent asked him to show it to other bidders. So what did he do? He wore a big red carnation. On the right lapel, it signaled his people that competitors were around and to talk the place down. On the left, it meant his own backers were there and to talk it up. If he'd do that to his own company, you can be sure he'll do it to you. We passed."
The team expects more than mere technical competence from its managers -- that is, something more than a thorough understanding of the business and industry, dexerity with basic business skills, and a record of demonstrable effectiveness. Above all, members say, they are looking for "good human beings with the right stuff," a rich discovery unearthed more by intuition and feel than by hard analysis.
They may be hard to find, but at least there are a few clues to look for. Successful candidates invariably display the same characteristics, including an optimistic worldview heavily colored with a sense of fair play, initiative coupled with calm persistence, and a willingness to commit "emotional equity" as well as the personal financial investment routinely required of every manager-owner. The one question the team must always answer positively before it will proceed any further is, "Will they make good partners?"
