Case in Point

A profile of the 1995 Turnaround Entrepreneur of the Year and the runners-up.

By Leslie Brokaw | 
 

Joanna Lau saw promise in a company she analyzed as part of her M.B.A.education. Others saw a company in a shrinking industry -- defense -- and losses of $1.5 million. Lau bought the business anyway, and proved that she was right

TURNAROUND ENTREPRENEUR
Turnaround Entrepreneur: An individual whose management skills resurrected or repositioned a declining company

* * *

THE WINNER
Joanna T. Lau
Company: Lau Technologies, Acton, Mass.

1989 Revenues: $7 million

1989 Losses: $1.5 million

1994 Revenues: $49 million

1994 Profits: $2.7 million

Number of employees: 210

Business: Electronic-systems manufacturer. A former division of a public company, Bowmar Instrument Corp., bought by Lau in 1990

* * *

THE RUNNERS-UP
Steve Sanghi
Company: Microchip Technology Inc., Chandler, Ariz.

1990 Revenues: $74 million 1990 Losses: $2.5 million 1994 Revenues: $208 million 1994 Profits: $49 million

Number of employees: 1,450

Business: Semiconductor manufacturer. Spun out of General Instrument Corp. in 1989; bought by Sanghi in 1990. Went public in 1993

* * *

Mo Siegel
Company: Celestial Seasonings Inc., Boulder, Colo.

1991 Revenues: $49 million

1991 Losses: $3.3 million

1994 Revenues: $65 million

1994 Profits: $7.2 million

Number of employees: 220

Business: Herbal-tea marketer. Founded by Siegel in 1970; sold in 1984; bought back in 1988. Went public in 1993

* * *

All turnaround buyout stories start out the same way: What were you thinking? The company Joanna Lau bought in 1990 was as pitiful as they come. Bowmar/ALI was a defense-industry subcontractor (reason enough for fainter hearts to flee); its three customers had given notice; its suppliers were shipping COD only; and its profits had turned to losses -- $1.5 million on sales of $7 million the previous year.

That was the bad news. Of course, there was some good news. Neither Lau nor the 24 employees who joined her to buy the company from its publicly owned parent thought that the problems were entirely their own. They put much of the blame on the parent company, Bowmar Instrument Corp., saying that it had stripped the division of too much control. Bowmar Instrument had posted a 1989 loss of almost $3 million on overall revenues of $42 million and was struggling with a postbankruptcy reorganization, which included having another company handle the entire business's finances. Bowmar/ALI could do little more than watch and cringe as its suppliers got strung along for 150 days. It was slowly becoming all but impossible to get new materials or to meet production commitments. "We were dying on the vine," is how Jim Bender, a 30-year career executive with the division, remembers it.

Lau was a 30-year-old General Electric-bred engineer looking for a manufacturing operation she could run on her own when she did a manufacturing case study on Bowmar/ALI for her M.B.A. studies. (She'd gone in to look at how the company used information systems, and ended up writing about how it was surviving despite its obsolete systems.) She liked the people, she liked the company's niche -- building electronics for the Bradley armored personnel carrier -- and she thought the business had the potential to thrive, given some freedom and focus. "From what I saw," says Lau, "the parent company was treating this division as a cash cow."

Lau couldn't finance a buyout herself. Her family had immigrated from Hong Kong to New York when she was 17, and she didn't have family money. She didn't want to do the buyout that way anyway. To keep the company's program managers (who had the customer contacts), its purchasing people (who had the relationships with the vendors), and the people on the manufacturing floor (who understood the process), she offered the 60-some employees the challenge and opportunity to buy the company with her. More than a third said yes.

With $3.1 million -- $1.2 million in a bank loan, $750,000 from a minority-targeted Small Business Administration loan guarantee, $300,000 in notes from the former owners, and $850,000 from Lau and the other employees -- the new company, renamed Lau Technologies, became independent in March 1990. Lau herself had 56% ownership, the employee owners had 36%, and the company retained 8% for future new hires.

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