Leveraged Buyout Trailblazer Ted Forstmann Dead at 71

leveraged buyout trailblazer ted forstmann dead at 71
leveraged buyout trailblazer ted forstmann dead at 71

On Monday, global sports and media behemoth IMG announced the death of its chairman and CEO, Theodore J. "Ted" Forstmann, from brain cancer. Forstmann, born in 1940, was a former investment banker and a private equity pioneer. The firm he co-founded in 1978, Forstmann Little & Co., was one of the first to engage in leveraged buyouts, deals in which investors use borrowed money to buy a company.

Forstmann's business model was to buy ailing companies, turn them around and sell them for a profit -- sometimes billions of dollars -- of which he took 20%. During his tenure, Forstmann Little acquired or invested heavily in 31 companies, including Gulfstream Aerospace, Dr Pepper and General Instrument. In a statement, the firm said it has returned more than $15 billion to investors over the last 33 years.

As the leveraged buyout business grew, Forstmann became a critic of what he considered the reckless use of debt to finance purchases. In 1988, he wrote in an op-ed for The Wall Street Journal in which he likened the spate of buyouts at the time to "a herd of drunk drivers tak[ing] to the highways on New Year's Eve." It was in the late 1980s that Forstmann first described private equity investors bent on takeovers as "barbarians at the gate", a phrase later used as the title of a book on the leveraged buyout of RJR Nabisco, and the subsequent film adaptation, in which Forstmann played a supporting role.

Forstmann Little's statement announcing the death of its senior founding partner noted that his innovations included a "a unique subordinated debt fund that enabled the firm to finance acquisitions without issuing junk bonds."

In 2001, the firm ran into trouble involving telecommunications investments during the Internet bubble. Forstmann, who later said he did not use a computer, attributed the failures to his delegation of decision-making to younger players. Three years later Forstmann bought IMG, an entertainment talent agency that represents some of the biggest names in sports, fashion and media, including Tiger Woods and Roger Federer.

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In 2010, allegations emerged that Forstmann had been betting extensively on college and professional sports, including contests involving IMG clients (such as the 2007 French Open final between Federer and Rafael Nadal, and several golf tournaments featuring Woods). While the bets were not illegal, many accused Forstmann of acting unethically. (For instance the NCAA, which had business dealings with IMG's college division, said its "expectation is that those providing services ... will not wager on sports.")

Confronted with the appearance of impropriety, Forstmann responded, "I never thought about it that way. I never thought about it at all. They were minor bets. They were to make boring Sunday afternoons more interesting." He described himself as a lifelong gambler who used to pay the rent with winnings from bets on games like backgammon and golf. The French Open bet was merely a means of rooting for Federer, he explained, denying claims of a pre-match telephone call with the Swiss champion that might have provided inside information. (Federer lost that match to Nadal, another IMG client.)

Forstmann was also noted for his philanthropy, which included co-founding the Children's Scholarship Fund and serving as a director of the International Rescue Committee. In February 2011, he signed the Giving Pledge, committing to donate a majority of his estate to charitable causes.