At the upper end of this scale, investment managers such as Chemical Venture Partners, in New York City, and Abbott Capital Management, in Needham, Mass., have hundreds of millions of dollars at their disposal, much of it destined for management-led buyouts in the $15-million-to-$200-million range. "Managers of businesses will become what entrepreneurs were in the '80s," says Abbott's Stanley E. Pratt, a general partner. "We've learned that the really big returns come from the growth and revitalization of existing businesses." Maybe not surprisingly, some of the industry consolidators are getting their financing from these sources. Chemical Venture Partners, for example, has bankrolled PTN Publishing Corp., headed by Stanley S. Sills, brother of opera star Beverly Sills. PTN has acquired some 15 small specialty trade magazines.
The partnership/buyout concept is being applied at the lower end of the marketplace as well. Mike Stevens, for example, put together a limited-investment partnership only a little over a year ago. His targets: small, family-owned companies, with $3 million to $30 million in annual sales. Stevens's financial partners include one money-fund manager and several individuals, mostly company builders themselves; they can come up with $1 million to $2 million in equity on any given deal. Typically, Stevens says, he'll plan on retaining the current general manager or finding a new one, making sure he or she has an equity stake in the business as well. "At any given time we're talking with 15 or 20 managers looking to buy businesses. People with experience, ready to put some money into it. They're usually good at running the business, but they wouldn't know how to structure the deal or where to find the money to buy it."
The buyout entrepreneurs. Almost by definition, buying a company requires more experience than a start-up -- no one's likely to finance purchasers who haven't yet cut their managerial teeth, and bootstrapping is rarely an option. And the ranks of experienced and footloose managers have swelled in recent years as America's largest corporations have slashed their white-collar payrolls. "You'll see the impact of all that downsizing for another 25 years, through the end of those people's careers," says Bridge Group's Mick. "It'll make them more receptive to doing entrepreneurial things." Many of the corporate refugees, adds Mick, neither want nor feel well suited to a start-up situation. "Doing entrepreneurial things" means looking for a business to buy.
So it is, for instance, with John Vinton. A Columbia M.B.A., Vinton pursued a classic big-company marketing career: stints with Procter & Gamble, Frito/Lay, and Gillette, then eight years as president of yogurt maker Colombo, a subsidiary of a French multinational. In the past Vinton might have continued to climb the corporate ladder, keeping his eye out for an upward move into another giant company. In today's climate, he'd rather run his own business.
The trouble is, Vinton isn't a start-up kind of guy. "My experience lies in building companies, not in starting them. I'm not a classic entrepreneur, a guy with an idea that's waiting to be cultivated." Then too, he wants an organization big enough for the management skills he spent a career learning. "I've got business-school experience. I know how companies can be managed. I want to be in an environment where I can use the techniques and where there are resources available to do that."
For several months now, Vinton has been looking for a consumer-goods company to buy. It's not what you'd call an idle pursuit: thanks to his background and contacts, he can bring plenty of money to the table, both his own money and the funds of well-heeled private investors who know him and his capabilities. It's the same with other big-company refugees. "There's a sizable group of people -- I guess I'm one -- who maybe have a little money put away, and because of their exposure to people in their previous careers know where more money can be found," says Dorothy Serdenis, the Merrill Lynch veteran. "Because I know some people that would be willing to invest with me, I could buy something bigger -- maybe up to $10 million -- than I could ever do on my own."
Traditionally, executives who bought small or midsize companies were simply opting out of the rat race, trading the perks and potential of fast-track corporate life for six-hour days and month-long vacations. New-breed buyers like Vinton have other things in mind entirely -- innovation, modernization, and growth. As with any entrepreneur, their objective is to build a company, not just a bank account.
Case in point: Steve McDonnell, who in 1987 became the proud owner of Jugtown Mountain Smokehouse, a tiny specialty-meats producer in Flemington, N.J. McDonnell didn't know much about meat when he bought Jugtown. But he had plenty of experience in business, and he figured that even a sleepy family-owned company could provide opportunities for a growth-oriented owner. So McDonnell invested in new meat-processing equipment and a new computer system. He introduced hitherto-unknown fundamentals such as cost accounting and budgeting. He changed his product mix to keep up with market trends, emphasizing low-fat products such as smoked turkey. Hitting the road, he sounded much like a start-up entrepreneur. Give me a chance, he'd tell prospective customers. It's my first company, and I'm just trying to get it off the ground. Off the ground it got: sales rose from roughly $300,000 in 1987 to an estimated $1.4 million in 1990.
Recently, McDonnell has begun merger-and-acquisition discussions with his major competitor, a move that would both triple his company's size and eliminate a good deal of price competition. ("It would give me, uh, a little more flexibility on pricing," he delicately puts it.) He's also pursuing a larger company that specializes in European-style meats, and is investigating joint-marketing arrangements with specialty-food producers in other parts of the country. In short, he's aggressively going after growth, while avoiding the rigors and agonies of a start-up. It's a model of entrepreneurship with a growing appeal.
