Gores is the founder of the eponymous Gores Group, a major investment firm based in Beverly Hills. The company, started in 1987, has been at the vanguard of private equity trends since its inception, from carve-outs in its early days to special purpose acquisition companies — or SPACs — today.
Each step of the firm’s evolution has been informed by Gores’ personal experiences. Born to working-class immigrant parents, the private equity mogul rose through the business world by studying the successes, and the failures, of those around him. He applied those lessons to his business, putting his firm ahead of the curve for a number of major trends.
This forward-thinking approach was thrown into the limelight again last year amid the boom in SPAC deals. The vehicles accounted for a majority of the U.S. initial public offering, or IPO, market last year, with 248 SPACs raising more than $83 billion, according to SPACInsider.
Gores first used the approach in 2015, years before virtually any other major institutional investor. He has since become one of the biggest names in SPACs and is often credited with helping bring the investment approach into the mainstream.
Gores set the record for the biggest SPAC deal in history last fall when he merged his firm’s fifth SPAC with the nation’s largest wholesale mortgage lender at a $16 billion valuation. Despite the flood of SPAC deals, that record held until last month.
After a string of successes, Gores can now add the title of the Los Angeles Business Journal’s 2021 Businessperson of the Year to his long list of wins.
Despite a hectic week of deal-making — and running on only a few hours of sleep — Gores made time for a virtual sit-down with the Business Journal to discuss his career, his approach to business and more.
To start, can you tell us a bit about your early background? How did a degree in computer science in Michigan lead to a career in private equity?
We don’t come from any money. I was the oldest of six kids. I was the first to go to college of any generation (in my family). I started my first company right out of college in Flint, Mich. I was selling mini-computers to small businesses. It was just me and no employees. This was 1978, when everyone was doing things manually.
That must have been a hard sell. Did you pick up any key lessons from that work?
Yes. Because I was selling (computers) to all these entrepreneurs, I got to see how they ran their businesses. I got to learn from them because I was just a computer guy. I sold to maybe 300 businesses over that time. It was like going to school for free while selling computers.
And how did that transition into private equity?
I sold my first business, Executive Business Systems, when I was 33 for $2 million. I ended up using that money to buy a company that had some problems and cleaned it up and sold it.
So, you went straight from running a computer business to private equity dealmaking?
I was an operator. I didn’t know how to do deals. I created this model where we would go in and fix up the operations at a company and then sell it. I was early on in private equity before everyone knew that it was private equity.
Did you have a particular approach or focus during that time?
I created this process of buying divisions from big companies — because there is a good chance that you are going to get screwed up being part of a big company. So, I ended up doing carve-outs for the next 10 years.
Were there any big things you took away from that period in your career?
I got to see how people were messing up their companies. I got to see what people were doing wrong (and what not to do).
How did your firm start gaining traction? Were there any pivotal deals that helped establish Gores Group as a major player?
The two big ones that put us on the map were the Learning Co. (carve-out) from Mattel, and VeriFone (Systems carve-out) from HP. Those were in the early 2000s.
I took all the lessons I had had previously from my business experience and applied it to those (companies). We took the Learning Co. from loss-making to profitable in like 75 days.
The Siemens (Enterprise Communications carve-out) was also big. Those successes brought in a lot more deals.
You started focusing on SPACs around 2015 — way before this current boom that we’re in now. What were your initial feelings about SPACs?
At first, it took me some time to agree to go with this thing (SPACs). But once we landed on it, I really loved it. I love it more than private equity.
It’s fun. Everything is fast. It’s my speed. I’m kind of ADD. The speed and velocity keeps you awake seven days a week.
Anything specific that appealed to you about the process?
You are partnering with companies, you are partnering with investors, partnering with entrepreneurs, and you are all coming together to make this thing work. Also, you get to write a big check alongside it.
For me personally, I can talk to some 25-year-old entrepreneur that wants to go public and talk to him about the deals I did and things I learned when I was 25. That is the thing I love the most (about SPACs).
You’ve been very successful in the SPAC space, closing the biggest SPAC deal in history last fall with United Wholesale Mortgage. Why has Gores Group’s SPAC business performed at such a high level?
It starts with the relationships you build with people. We have a lot of really strong relationships. Also, because of our reputation, we get a lot of inbound opportunities and can choose the best ones.
I had to build my own business and learn the hard way. I had to do the due diligence, build the relationships, do everything myself. I’m applying everything I ever learned to these deals, from understanding entrepreneurs, to the importance of transparency to doing the due diligence. Everything I’ve learned over 40 years, I’m applying that. I call it the Gores way.
What are your thoughts on the current SPAC boom we are in? Do you think the market is oversaturated or about right for the level of demand?
I think there is saturation in the market, but I don’t lose sleep over that. It actually creates more opportunities for us.
How does more competition create more opportunities for you?
It reminds me of my first business when I was selling computers. When I called businesses talking about computers, they would almost hang up on you. I had to do so much education (about what computers were).
Nobody knew what a SPAC was when we started doing this. Now, all these other SPAC guys help do the education for us. Once (a company) has the education, once they get serious, then we show up. I’ve got so many customers, I win the business every time.
So it sounds like you’ve settled into an approach that works for your SPAC deals.
We’re not staying still. We’re always trying to think of ways to improve this product. Our playbook continues to evolve every day.
Do you have any thoughts on how Covid has played into the SPAC boom? The timing of the two coincided pretty closely.
I really couldn’t tell you. There were a couple of other big deals that happened around that time that probably helped. For me it’s been great — I’ve been able to do all of these deals right out of my home.
Do you think SPACs are going to continue to be your focus for the foreseeable future?
Yes, right now there is so much business. We will be busy doing this for a long time. We’re not raising one or two SPACs. We are building a real franchise here.
Your brothers, Tom and Sam, are both big names in the local business community as well. Any thoughts on how you three all ended up having such a meteoric rise from Michigan to where you are today?
We are very blessed; we had great parents. They embedded in us honesty, fairness and hard work. They taught us that you get what belongs to you, but you also don’t take what doesn’t belong to you, what you haven’t earned. They taught us how to make money the honest way.
A lot of us have had some pretty big life changes under Covid this last year. Has anything significant changed about your work or lifestyle since the lockdowns began?
I think I’ve learned efficiency. It’s so much more efficient to work from home. You can really avoid 80% of travel. Especially where I am in life, I can really do everything through Zoom. I can use my reputation and all the relationships I have. If you’re young, it’s different because you need to travel and make those relationships in person.
In some ways, Covid has been a blessing because I get to spend more time with my family and my kids. It’s been a great excuse not to go anywhere. In the future I think we can avoid a lot of travel.
Stepping away from work, do you have any hobbies or projects that you work on for fun?
No, I don’t have that many hobbies. My work is my No. 1 hobby. I love what I do. I’ve golfed a little bit, but the problem with golf is that I’ve worked my whole life, and so I don’t have a lot of time to practice. So, I’m not very good at it.
I don’t think I’m a workaholic, though. I used to be a workaholic, but now I do it because I enjoy it.
What about family life? Are you able to make time for your family with all that work?
I spend a lot of time with my family. I have six kids, I have a wife, (and) I have five grandkids. My youngest is a 20-month-old baby.
What do you usually do together? Do you have any favorite family activities?
We’re pretty simple. We like just getting together on Sundays for dinner. We watch a lot of sports — football, basketball. We also have a house on Lake Michigan, and we go there a lot. With the family, that’s probably my favorite thing to do.
What about philanthropy? Are there any causes you give to or are passionate about that you would highlight?
There are quite a few, but I don’t talk about it. I’m not someone that wants to put my name on a building. I give directly. I do it for one reason: to help, not to get any credit.
What is your outlook for Los Angeles businesses in 2021?
First of all, we need to get Covid over with. I’m hoping by the fall things can get back to somewhat normal.
I think once things get back to normal with Covid, things will come back pretty fast because people will be hungry. They’ll be wanting to get back to eating out, going to the movies.
The key thing is Covid, though. I don’t know when this whole Covid thing is going to end.
Key Deals That Shaped Gores Group
Gores Group has been involved in many major deals since its founding more than three decades ago. These have ranged from carve-outs — the firm’s focus in its early years — to special purpose acquisition companies. Today, SPACs are the core of Gore’s business. Here are three deals that played outsized roles in the firm’s development.
2000: The Learning Co.
The Learning Co.: One of Gores’ earliest major successes was its purchase of a struggling software business from Mattel Inc. The business had operational problems and was hemorrhaging $1.5 million daily, according to Gores. His firm aggressively cut costs, consolidated redundant units, dropped unprofitable product lines and made the Learning Co. profitable in 75 days. Gores sold the company’s entertainment division to French video game developer Ubisoft Entertainment in 2001. Later that year, it sold Learning Co.’s education assets and name rights to Irish education technology company Riverdeep Interactive Learning, today part of Houghton Mifflin Harcourt Co.
2001: VeriFone Inc.
VeriFone Inc.: Gores acquired the Santa Clara-based electronic payments company from computing giant Hewlett-Packard Co. (today HP Inc. and Hewlett Packard Enterprise). Hewlett-Packard had bought the company in 1997 for about $1.2 billion but shed the asset only four years later due to a worse-than-expected performance. Gores Group turned VeriFone around in less than a year, helping it reach $350 million in annual revenue with strong profitability, according to Gores. The firm sold VeriFone to Chicago-based private equity firm GTCR in 2002.
2015: Hostess Brands Inc.
Hostess Brands Inc.: Gores’ transition to SPACs began with this deal. The firm raised $375 million in a public offering for its first SPAC, Gores Holdings, and used that capital to purchase the iconic company in a $2.3 billion deal. Although that figure has since been dwarfed by Gores’ other record-setting SPACs, the size of the transaction and Hostess’ high profile helped put Gores on the map as one of the first major institutional SPAC investors.
