private equity firm
A private equity firm or private equity company (often described as a financial sponsor) is an investment management company that provides financial backing and makes investments in the private equity of a Startup company, startup or of an existin ...
, specializing in
leveraged buyout
A leveraged buyout (LBO) is the acquisition of a company using a significant proportion of borrowed money (Leverage (finance), leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of t ...
s (LBOs). At its peak in the late 1990s, Forstmann Little was among the largest private equity firms globally. Ultimately, the firm would suffer from the bursting of the internet and telecom bubbles, having invested heavily in technology and
telecommunications
Telecommunication, often used in its plural form or abbreviated as telecom, is the transmission of information over a distance using electronic means, typically through cables, radio waves, or other communication technologies. These means of ...
companies. Following the death of the last surviving founder,
Theodore Forstmann
Theodore Joseph Forstmann (February 13, 1940 – November 20, 2011) was one of the founding partners of Forstmann Little & Company, a private equity firm, and chairman and CEO of IMG (business), IMG, a global sports and media company. A billiona ...
, in 2011, the firm was dissolved and its assets sold off. It closed in May 2014.
Long Island
Long Island is a densely populated continental island in southeastern New York (state), New York state, extending into the Atlantic Ocean. It constitutes a significant share of the New York metropolitan area in both population and land are ...
. He arranged for Ruttenberg to meet
Henry Kravis
Henry Roberts Kravis (born January 6, 1944) is an American businessman, investor, and philanthropist.Jerry Kohlberg of the start-up
Kohlberg Kravis Roberts
KKR & Co. Inc., also known as Kohlberg Kravis Roberts & Co., is an American global private-equity and investment company. , the firm had completed private-equity investments in portfolio companies with approximately $710 billion of total ...
. Kravis and Kohlberg proposed what they called a
leveraged buyout
A leveraged buyout (LBO) is the acquisition of a company using a significant proportion of borrowed money (Leverage (finance), leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of t ...
. After the two had left, Ruttenberg suggested that Forstmann could do the same himself. Ruttenberg arranged funding for Forstmann, who launched Forstmann Little & Company in 1978.
The company was founded by brothers Ted and Nick Forstmann, and Brian Little. With the deaths of Brian Little and Nicholas Forstmann in 2000 and 2001, respectively, Ted Forstmann was the chief partner. A third brother, J. Anthony Forstmann, is a limited partner in the firm.
Between its inception in 1978 to its 2014 closing, the firm made more than 30 acquisitions and significant investments returning over $14 billion in profit for its investors.
Successful acquisitions included
Gulfstream Aerospace
Gulfstream Aerospace Corporation is an American aircraft company and a subsidiary of General Dynamics.
Gulfstream designs, develops, manufactures, markets, and services business jet aircraft. Gulfstream has produced more than 2,000 aircraft sinc ...
Dr Pepper
Dr Pepper is a carbonated soft drink. Dr Pepper was created in the 1880s by the American pharmacist Charles Alderton in Waco, Texas, and was first nationally marketed in the United States in 1904. It is manufactured by Keurig Dr Pepper in t ...
,
Stanadyne
Stanadyne (originally known as Stanadyne Automotive Corporation) is an American developer and manufacturer of fuel pumps and fuel injectors for diesel and gasoline engines. The company specializes in fuel injection equipment producing component ...
, and
General Instrument
General Instrument (GI) was an American electronics manufacturer based in Horsham, Pennsylvania, specializing in semiconductors and cable television equipment. They formed in New York City in 1923 as an electronics manufacturer. During the 1950s ...
. The company was usually successful in making a profit on such purchases, selling Gulfstream to
General Dynamics
General Dynamics Corporation (GD) is an American publicly traded aerospace and defense corporation headquartered in Reston, Virginia. As of 2020, it was the fifth largest defense contractor in the world by arms sales and fifth largest in the Unit ...
, and General Instrument to
Motorola
Motorola, Inc. () was an American multinational telecommunications company based in Schaumburg, Illinois. It was founded by brothers Paul and Joseph Galvin in 1928 and had been named Motorola since 1947. Many of Motorola's products had been ...
. In the case of Gulfstream, Ted Forstmann took direct control of the financially ailing company's day-to-day operations to improve the company's attractiveness to a potential acquirer.
The company has also had some flops, such as
McLeodUSA
McLeodUSA, based in Cedar Rapids, Iowa, was one of the nation's largest independent competitive local exchange carriers (CLECs) during the years preceding its acquisition in 2008. The company also had offices in Springfield, Missouri, Tulsa, Oklaho ...
and
XO Communications
XO Communications, LLC, previously Nextlink Communications, Concentric Network Corporation and Allegiance Telecom, Inc., was an American telecommunications
Telecommunication, often used in its plural form or abbreviated as telecom, is the ...
. In 2002, the state of Connecticut sued Forstmann, Little & Company to recover $125 million in losses associated with investments in these two telecom companies, citing negligence and breach of contract. While Forstmann settled the case for $15 million, the suit was considered a landmark, launching a series of similar actions between private equity fund managers and public entity investors.
One prominent episode in the life of the company was the 1988 bidding war for
RJR Nabisco
R. J. Reynolds Nabisco, Inc., doing business as RJR Nabisco, was an American conglomerate, selling tobacco and food products, headquartered in the Calyon Building in Midtown Manhattan, New York City. R. J. Reynolds Nabisco stopped ...
. Forstmann Little offered to acquire
RJR Nabisco
R. J. Reynolds Nabisco, Inc., doing business as RJR Nabisco, was an American conglomerate, selling tobacco and food products, headquartered in the Calyon Building in Midtown Manhattan, New York City. R. J. Reynolds Nabisco stopped ...
Citadel Broadcasting
Citadel Broadcasting Corporation was a Las Vegas, Nevada-based broadcast holding company founded and developed by Larry Wilson. Citadel owned 243 radio stations across the United States and was the third-largest radio station owner in the count ...
, of which Forstmann Little owns 27%, following a merger with ABC Radio in 2006. In 2004, Forstmann Little acquired IMG in a $750 million deal, and in 2005 bought 24 Hour Fitness for $1.6 billion.
Dissolution
In 2011, Theodore Forstmann, the last surviving founder, died of brain cancer. The law firm
Akin Gump Strauss Hauer & Feld
Akin Gump Strauss Hauer & Feld LLP (known as Akin Gump or Akin) is an American multinational law firm headquartered in Washington, D.C. It is the second-largest lobbying firm in the United States by revenue.
History
The firm was founded in Dal ...
dissolved the firm by selling off its assets. IMG was sold in 2013 for $2.3 billion to
William Morris Endeavor
Endeavor Group Holdings, Inc. (formerly William Morris Endeavor and WME-IMG) is an American holding company for talent and media agencies with its primary offices in Beverly Hills, California. The company was founded in April 2009 after the me ...
. The last asset to be sold was 24 Hour Fitness, which was purchased for $2 billion by
AEA Investors
AEA Investors LP is an American middle market private equity firm. The firm focuses on leveraged buyout, growth capital, and mezzanine capital investments in manufacturing, service, distribution, specialty chemicals, consumer product, and busi ...