Majority stockholder and assumed key C-level executive positions (chairman, CEO, and President), the US$1.5 billion turnaround of Fortune 300 Sunbeam-Oster Company.
Sunbeam-Oster stock price increased 12.2x within three years of acquisition, with an investment grade balance sheet, for a 104% IRR and a TVPI of 7.08x.
Within three years of acquisition: operating profit increased at an annual growth rate of 84%; operating margin as a percentage of sales increased to 15% from 3%; free cash flow drove cash & equivalents as a percentage of debt to 193% from 30%; and, revenue increased 24% despite a period of economic recession.
After conducting extensive due diligence, dozens of industry leaders and private equity firms passed on Sunbeam-Oster believing the probability of a successful turnaround was impossible citing a decade long record of losses and a rotten company culture.
Sunbeam-Oster was a diversified consumer and professional products holding company with 26 business units, suffering from a loss of passion for innovation and performance, with once leading market shares and brand recognition in multiple channels of distribution. Sunbeam-Oster had number one or leading market shares in product categories throughout the world, with proprietary product strength in North America and Latin America, and niche product leadership in select markets in Europe and Japan; and dedicated supply chain partners in Asia, especially China. Employees remained stable at approximately 10,000 throughout the transformation.
Japonica’s superstructure team constructed operating segments financial statement information that did not exist and deconstructed almost impenetrably confusing financial information to discover operations, product lines, and customer accounts that were highly profitable though thought money losing for decades, as well as operations, product lines, and client accounts thought to be highly profitable that were in fact generating large losses.
Japonica assembled a team of well over 100 entrepreneurs and niche specialists who worked for approximately 30 months discovering value gaps based on hidden nuggets of value and transformational business plans. The combined nuggets of value extracted under Japonica management showed a downside risk of over two times on the day of acquisition with low risk high return upside value of more than four times investment cost.
Japonica management created value turning around this underperforming global special situation, assuming the Chairman/CEO and other senior executive positions, and changing its culture to become entrepreneurial. Japonica senior management who assumed positions at the underperforming global special situation received no equity compensation, transaction fees, or non-shareholder approved compensation. Japonica created Sunbeam-Oster University, an internal corporate university with function specific, culture changing impact. Twenty-one course modules included ROI Marketing Warfare, High Margin New Product Warfare, ROI Production Service Warfare, and ROI Logistics Warfare.
SOC had a value destructive culture rooted in a long history of money losing operations, failed new product introduction, marketing by ego not ROI, and resentment for new innovations. Japonica implemented its “five keys to success” culture as the foundation of its operating policy.
Upon acquiring control of SOC, Japonica implemented an extensive portfolio of emerging technologies utilized across industries, including but not limited to: RFID from logistic leaders including Union Pacific, EDI from Walmart, GMROI analytics from Proctor & Gamble, real time retail space management from benchmark supermarkets, micro-management probability SKU and inventory allocation, time management software, shelf stockout analytics, real time “shrink” data systems, CAD-CAM rapid new production processes from Boeing, TQM from General Electric and Motorola, and mobile access real time customer account management platform systems with 100% tie-in to financial report reconciliation. Among its many success stories was partnering with major retailers worldwide to become a profiled vendor invited to address HQ employees, partner on new technologies, and manage in-store space. New products were originated through internal development, such as PTC heating technologies, as well as with external sources, including acquisition of product concepts, joint ventures, and the purchase of emerging and mature product lines.