People Interview: Purchasing POWER

Acquisitions mogul Tom Gores, who is eyeing Global Crossing, finds value in tech market.

By ANTHONY PALAZZO

Staff Reporter

Tom Gores cut his teeth in the mid-1980s eons ago in computer years selling business software through a Michigan company run by his older brother, Alec. There, Gores said, he learned firsthand the importance of maintaining relationships with customers and understanding their needs. Alec Gores sold the company, and later the brothers became partners in a new venture, looking for technology companies to buy. In 1995, Tom Gores broke away from his brother to form Platinum Equity, headquartered in Century City.

Since then, Platinum Equity has done 39 acquisitions, representing nearly $5 billion in annual revenues, most of it concentrated in the telecom and technology markets, while managing to avoid the excesses of the dot-com boom. His key business unit, NextiraOne, is a voice and data services operation formed from five of those acquisitions, two of more than $1 billion. No buyout firm did more acquisitions last year than Platinum.

Recently, Gores has been in the news as a contender to purchase Global Crossing Ltd. in a bankruptcy auction. In that deal, Gores will square off against brother Alec, whose Gores Technology Partners is also in the game.



Question: What kind of company does Platinum Equity buy?

Answer: It's got to have a service or technology customers depend on every day to run their businesses. You want to have predictability in your business to know that your big customers are going to be using it.



Q: Are they always in distress?

A: Bankruptcies are more common now, but typically for us it's been a parent company selling off a non-strategic division. Our profile company isn't always a mess. It was under-managed, had not reached its potential. Thirty percent of the companies we've bought were profitable before we bought them.



Q: What's the difference between the telecom companies you've bought and the ones whose stock market values have plummeted?

A: If you look at the Nortels of the world, and a lot of the people that are struggling, a lot of them are in the box-making business. They're making hardware. Our businesses really are more service oriented. Our businesses own the customer, which is really your biggest asset.



Q: A lot of the companies in trouble are the ones you've been buying assets from. What are they doing wrong?

A: Take Williams Communications (now in Chapter 11 bankruptcy). We bought a $1.4 billion data services division from Williams about a year ago. They wanted to sell it, because they thought they're a public company the real opportunity as far as market cap goes was in broadband, where they run the piping that connects networks. That's where they thought the biggest hit with the market was. What was above the ground wasn't considered sexy.



Q: You mentioned Williams was public. Is there something problematic about being a public company?

A: I think there is. As a private company, we never worry about perception. If revenue is going to go down, how's the market going to look at it? If the market and industry say revenues are going down, we better listen. We'd better position ourselves to exist on those revenues. Public companies are sometimes late to react.



Q: Do any public companies stand out as avoiding this pitfall?

A: Berkshire Hathaway, and I think in a weird way, General Electric. GE's done a great job of doing acquisitions. I know their stock's not the highest right now, but they've built a lot of value, they have decided to go for certain markets and become the one or two player. Hathaway, too, because they understand the businesses they're in.



Q: What about the telecom service provider market? There's a lot of tumult there.

A: I would say some of that supply has got to go away. It's already happening, you've got people in trouble. On our end, the services and the customer bases, it's flat right now, but we've got to be there. Our world depends on telecom. It's not going away. It's just a function of everybody predicting too much growth, so they overbuilt, spent way too much money doing it, and they built up the balance sheets.



Q: So then why would you be interested in Global Crossing?

A: First of all, they've built a good part of their network. It's 95, 96 percent built, so the capital expenditure required to build it is relatively spent. And like a lot of other companies, their cost structure was way too high, it just makes no sense at all. We already own 500,000 customers. The market eventually goes to one supplier to handle the above-ground and the underground, so we would have an immediate entr & #233;e into those 500,000 customers.



Q: Is 500,000 customers enough to fill Global Crossing's pipes?

A: It's something we're trying to figure out, actually, but it's not a for-sure thing. It's a little speculative. Our customers might not want to switch (bandwidth providers), even if we're servicing them. But I think part of where the market is going is, customers would like to go to one place to handle their needs, and they'll pay a little bit more and then you're providing the full solution.



Q: What is the status of your Global Crossing bid?

A: We really can't talk about it. Our interest is there, everybody knows that. It's a complicated situation.



Q: Who is your most serious competition in the deal?

A: In the end, it has to be somebody who can create value by virtue of what they can bring to the table. I don't think it's a purely financial play. I can't say specifically who that is because I can't disclose confidential information.



Q: Would you see another services competitor like IBM Global Services going in and buying a lot of capacity too?

A: IBM Global Services is one of our main competitors on the services side. I shouldn't say never, but in a situation like Global Crossing, that's a difficult situation for IBM go get involved in because they're not set up to handle a complicated, messy situation. They would have a hard time going in there and sorting it out.



Q: You often say you don't have an exit strategy. Would you entertain offers for a buyout of NextiraOne One?

A: We would consider it.



Q: Have there been offers?

A: There has been interest, actually. My gut feeling is that telecom actually is coming back, only because I see major players with interest today in NextiraOne.



Q: We talked about telecom, but Platinum has a company that provides healthcare billing services that's doing quite well.

A: Synertech Solutions is one of those companies we bought that wasn't a mess. It was making just under $1 million a month before we bought it in 1998 from Blue Cross/Blue Shield. They weren't managing it to its utmost. We've built it to making $3 million a month, we've added two acquisitions to it, and they've grown their revenues probably 50, 60 percent in the last three years. I'd say we're probably the No. 2 player in the market behind TriZetto Group. What we've really been able to do is a roll-up strategy in different spaces. If you look at NextiraOne, it's made up of five acquisitions that we brought together.



Q: Is that part of your strategy, put together one and one to make three?

A: When we buy a company it's an entry strategy, not exit. It's, "Can you buy the business properly and can you build value in the business?" If you're running the business fundamentally every single day, then you have many chances to exit. But if you buy the business saying, "My only way out is to flip it," then you're not going to run it properly and you're solely dependent on how the market is going to take it six months or a year from now. My final question to our deal guys is, "Are you willing to live with the business, are you prepared to keep it?" And if the answer's no, we don't have a deal.



Q: Would you take any of your companies public?

A: It's not necessarily the time to do it. To take it public, you have to have some dominance, some reasonable growth and some strategy to it. We would do it in two of our markets, both our voice and data company, NextiraOne, and our healthcare company, Synertech. Synertech doesn't represent a huge part of our portfolio but it's a valuable company. And the IPO space is going to be coming back.By ANTHONY PALAZZO

Staff Reporter

Tom Gores cut his teeth in the mid-1980s eons ago in computer years selling business software through a Michigan company run by his older brother, Alec. There, Gores said, he learned firsthand the importance of maintaining relationships with customers and understanding their needs. Alec Gores sold the company, and later the brothers became partners in a new venture, looking for technology companies to buy. In 1995, Tom Gores broke away from his brother to form Platinum Equity, headquartered in Century City.

Since then, Platinum Equity has done 39 acquisitions, representing nearly $5 billion in annual revenues, most of it concentrated in the telecom and technology markets, while managing to avoid the excesses of the dot-com boom. His key business unit, NextiraOne, is a voice and data services operation formed from five of those acquisitions, two of more than $1 billion. No buyout firm did more acquisitions last year than Platinum.

Recently, Gores has been in the news as a contender to purchase Global Crossing Ltd. in a bankruptcy auction. In that deal, Gores will square off against brother Alec, whose Gores Technology Partners is also in the game.



Question: What kind of company does Platinum Equity buy?

Answer: It's got to have a service or technology customers depend on every day to run their businesses. You want to have predictability in your business to know that your big customers are going to be using it.



Q: Are they always in distress?

A: Bankruptcies are more common now, but typically for us it's been a parent company selling off a non-strategic division. Our profile company isn't always a mess. It was under-managed, had not reached its potential. Thirty percent of the companies we've bought were profitable before we bought them.



Q: What's the difference between the telecom companies you've bought and the ones whose stock market values have plummeted?

A: If you look at the Nortels of the world, and a lot of the people that are struggling, a lot of them are in the box-making business. They're making hardware. Our businesses really are more service oriented. Our businesses own the customer, which is really your biggest asset.



Q: A lot of the companies in trouble are the ones you've been buying assets from. What are they doing wrong?

A: Take Williams Communications (now in Chapter 11 bankruptcy). We bought a $1.4 billion data services division from Williams about a year ago. They wanted to sell it, because they thought they're a public company the real opportunity as far as market cap goes was in broadband, where they run the piping that connects networks. That's where they thought the biggest hit with the market was. What was above the ground wasn't considered sexy.



Q: You mentioned Williams was public. Is there something problematic about being a public company?

A: I think there is. As a private company, we never worry about perception. If revenue is going to go down, how's the market going to look at it? If the market and industry say revenues are going down, we better listen. We'd better position ourselves to exist on those revenues. Public companies are sometimes late to react.



Q: Do any public companies stand out as avoiding this pitfall?

A: Berkshire Hathaway, and I think in a weird way, General Electric. GE's done a great job of doing acquisitions. I know their stock's not the highest right now, but they've built a lot of value, they have decided to go for certain markets and become the one or two player. Hathaway, too, because they understand the businesses they're in.



Q: What about the telecom service provider market? There's a lot of tumult there.

A: I would say some of that supply has got to go away. It's already happening, you've got people in trouble. On our end, the services and the customer bases, it's flat right now, but we've got to be there. Our world depends on telecom. It's not going away. It's just a function of everybody predicting too much growth, so they overbuilt, spent way too much money doing it, and they built up the balance sheets.



Q: So then why would you be interested in Global Crossing?

A: First of all, they've built a good part of their network. It's 95, 96 percent built, so the capital expenditure required to build it is relatively spent. And like a lot of other companies, their cost structure was way too high, it just makes no sense at all. We already own 500,000 customers. The market eventually goes to one supplier to handle the above-ground and the underground, so we would have an immediate entr & #233;e into those 500,000 customers.



Q: Is 500,000 customers enough to fill Global Crossing's pipes?

A: It's something we're trying to figure out, actually, but it's not a for-sure thing. It's a little speculative. Our customers might not want to switch (bandwidth providers), even if we're servicing them. But I think part of where the market is going is, customers would like to go to one place to handle their needs, and they'll pay a little bit more and then you're providing the full solution.



Q: What is the status of your Global Crossing bid?

A: We really can't talk about it. Our interest is there, everybody knows that. It's a complicated situation.



Q: Who is your most serious competition in the deal?

A: In the end, it has to be somebody who can create value by virtue of what they can bring to the table. I don't think it's a purely financial play. I can't say specifically who that is because I can't disclose confidential information.



Q: Would you see another services competitor like IBM Global Services going in and buying a lot of capacity too?

A: IBM Global Services is one of our main competitors on the services side. I shouldn't say never, but in a situation like Global Crossing, that's a difficult situation for IBM go get involved in because they're not set up to handle a complicated, messy situation. They would have a hard time going in there and sorting it out.



Q: You often say you don't have an exit strategy. Would you entertain offers for a buyout of NextiraOne One?

A: We would consider it.



Q: Have there been offers?

A: There has been interest, actually. My gut feeling is that telecom actually is coming back, only because I see major players with interest today in NextiraOne.



Q: We talked about telecom, but Platinum has a company that provides healthcare billing services that's doing quite well.

A: Synertech Solutions is one of those companies we bought that wasn't a mess. It was making just under $1 million a month before we bought it in 1998 from Blue Cross/Blue Shield. They weren't managing it to its utmost. We've built it to making $3 million a month, we've added two acquisitions to it, and they've grown their revenues probably 50, 60 percent in the last three years. I'd say we're probably the No. 2 player in the market behind TriZetto Group. What we've really been able to do is a roll-up strategy in different spaces. If you look at NextiraOne, it's made up of five acquisitions that we brought together.



Q: Is that part of your strategy, put together one and one to make three?

A: When we buy a company it's an entry strategy, not exit. It's, "Can you buy the business properly and can you build value in the business?" If you're running the business fundamentally every single day, then you have many chances to exit. But if you buy the business saying, "My only way out is to flip it," then you're not going to run it properly and you're solely dependent on how the market is going to take it six months or a year from now. My final question to our deal guys is, "Are you willing to live with the business, are you prepared to keep it?" And if the answer's no, we don't have a deal.



Q: Would you take any of your companies public?

A: It's not necessarily the time to do it. To take it public, you have to have some dominance, some reasonable growth and some strategy to it. We would do it in two of our markets, both our voice and data company, NextiraOne, and our healthcare company, Synertech. Synertech doesn't represent a huge part of our portfolio but it's a valuable company. And the IPO space is going to be coming back.



Interview: Tom T. Gores

Title: Chief Executive
Organization: Platinum Equity
Born: Nazareth, Israel, 1964
Education: Bachelor's of Arts degree from Michigan State University
Career Turning Point: Purchase of two companies, Milgo Solutions (now NextiraOne) and Synertech, in 1998
Most Admired People: Mother and father
Personal: Married, two children

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