What’s Left At Forstmann Little?

Everyone remembers Forstmann Little & Co., the once-great buyout house that never really survived the telecom crash, sputtering its way to a full-on halt in 2006. And like we all know, part of the problem, and beauty, of the buyout business is that it takes a long time to wind these things down.

Today Citadel Broadcasting Corp., one of Forstmann Little’s few remaining businesses, went bankrupt. The firm lost around $250 million in the deal, according to reports which relieve Forstmann Little of blame for the company’s demise. Since I had almost forgotten the firm still had a minority holding in the Citadel (28.7% to be exact), I thought it apt to take a look at the other companies Forstmann Little continues to manage.

The firm’s holdings are marketing and event firm IMG World, gym operator 24 Hour Fitness, and trade show company ENK International.

IMG World
Forstmann Little purchased IMG in 2004 for $750 million. Since then, the company’s earnings have increased by five times, Forstmann told India’s Economic Times in 2008. The company, which is nearly debt-free, reportedly had a suitor in June 2008, when the New York Post reported that Goldman was advising Forstmann Little on a sale of the company, with former Yahoo and Warner Brothers CEO Terry Semel considering a $2 billion to $3 billion bid. That anyone was considering a bid of that size for any company in June of 2008 is dubious; there’s no word on why the deal fell through. Either way, if M&A continues to pick up as it has, Forstmann may be on the track for an exit by June of 2010.

24-Hour Fitness
Forstmann Little took control of 24-hour Fitness in 2005, paying $1.6 billion for the nation’s largest fitness chain. The company was made popular by the show “Biggest Loser” but recently became the subject of a class action law suit. The gym is accused of violating RICO laws and the Electronic Fund Transfer Act for taking monthly payments from customers’ accounts after cancelling their memberships. If the gym is found in violation of the RICO laws, the company faces potential liability for more than $100 million, according to October 22 press release from the prosecution.

ENK International
The firm’s final holding is ENK International, a tradeshow organization in which Forstmann Little made an investment of undisclosed value in 2006. The company executed an add-on deal in 2007, purchasing WSA Global Holdings.

Since announcing it would not raise a new fund in 2006, Forstmann Little’s personnel has been paired down to just a few investment professionals (yet for some reason it still has a PR firm on retainer). The firm’s outspoken leader Teddy Forstmann continues to serve on the board of IMG, while dedicating much of his time to charities like the Children’s Scholarship Fund.

He told Economic Times, “What you call private equity today, I invented.” And he did enjoy homeruns with investments like Dr. Pepper and Gulfstream Aerospace. But sadly it will be Forstmann Little’s missteps that Forstmann will be most remembered for. The firm’s demise began at the beginning of this decade with the bankruptcies of telecom portfolio companies XO and McLeod. But the final nail in its coffin came after a nasty battle with the State of Connecticut after the state lost $125 million in co-investments with the firm. (I believe the term “double-crossers” was thrown out by a Connecticut investment officer.) Forstmann Little only paid a $15 million settlement to the State of Connecticut, but the damage was done.

Even Forstmann Little’s most famous deal is one it lost—the battle with KKR for RJR Nabisco. That deal is documented in detail in the book, “Barbarians at the Gate,” and Forstmann has jokingly pointed out that he deserves credit for coining the book’s title. “Barbarians at the Gate” marked the demise of the late 80s leveraged buyout boom, and even though the RJR Nabisco deal turned out to be a dud, KKR, with at least 62 portfolio companies, is still here, and Forstmann Little, for all intents and purposes, is not.