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So, Whom Should We Have Rooted For?
Who would be better -- or worse -- for
Michaels, Bain or KKR?
By Mike Hartnett (July 3, 2005)
The two consortia who were bidding for Michaels each contain a
company with a so-so history in our industry. In the 90's Bain
Capital bought Tulip, the leading fabric paint company at the peak
of the wearable art trend. Many of us at the time thought the
company had paid way too much: $100 million. A few years later as
fabric paint declined, Bain sold Tulip to Duncan, reportedly for a
mere fraction of what it had paid.
Kohlberg, Kravitz Roberts (KKR) started Primedia which bought Craftrends,
Creating Keepsakes, Sew News, and a host of other
magazines in and out of our industry. The company went public about
nine years ago at approximately $11 per share and the stock reached
a high of about $35 in early 2000. One of their acquisitions,
About.com ,cost hundreds of millions of dollars and Primedia bought
it about 20 minutes before the dot.com boom collapsed. Today the
stock is trading under $2 a share.
(I was Associate Publisher/Editor of Craftrends when it
was sold to Primedia. I tried working for Primedia for a couple of
years but became disgusted with the way the hotshots in New York
treated employees. I quit and started CLN.)
Now KKR and Bain were bidding for Michaels. Some retailers would
like to see Michaels falter; some vendors need Michaels to succeed
in order for them to stay in business. So, whom should people on
both sides of the question root for?
I asked a leading mergers & acquisitions firm who subscribes
to CLN. He has extensive experience in our industry and with
investment firms. Because he's currently involved with deals
affecting our industry, he asked that his name be withheld. Here's
"That's a tough question. These private equity firms have
become so big that it's hard to generalize about which one may be
better than the other. I don't know any of them well enough to know
how they differ in terms of 1) whether they take a
"hands-on" or "hands-off" approach to managing
their portfolio companies; 2) whether they can add strategic
value (e.g. planning, recruiting, strategic alliances, acquisitions)
in addition to capital; or 3) whether they tend to focus on
short-term cash generation or long-term growth, etc. An argument can
be made that, rather than only comparing firms, it may be just as
relevant to compare the transaction teams at each firm to determine
their approaches and track records.
"I don't know the history of Tulip, but no amount of capital
can force customers to buy your product. If consumer demand for
fabric painting had peaked and begun a rapid decline, there probably
was not much that Bain could do to stop the bleeding. You might have
a valid argument that they bet on the wrong product sector at the
wrong time (and possibly the wrong management team), but I suspect
that Bain did everything they could from a reasonable business
perspective to try to fix the company before selling it. At some
point, however, it's better to take your losses and move on to the
"I don't know the history of Primedia either, but it's
important to keep in mind that private equity groups are generally
not involved in the detailed day-to-day decision-making at their
portfolio companies. The partners of the firm usually function more
as a board of directors focused on hiring and overseeing senior
management, helping set a company's overall strategic direction,
M&A activities, capital raising, etc. If there were management
problems at Primedia, perhaps that is the reason the former
management team is no longer at the company.
"I'm not suggesting that private equity firms don't make
mistakes, but rather that they usually focus on the 'big picture.'
If a company's management makes a mistake, the private equity firm's
response will vary depending on their knowledge of the mistake, the
magnitude of the mistake, their relationship with and confidence in
the management team, the size of the company relative to the firm's
total portfolio, and many other factors.
"I don't know if that helps but it may provide another
framework for thinking about your question."
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