From Dan Peña – Executive Coach and Mentor to the High Performer.

Dear Friend and Subscriber,

I just returned from NYC where I had an important meeting over Memorial Day weekend. Yes, I went on a business trip over an extended holiday weekend. Admittedly it was to see one of my favourites in a place I like! NYC looks great and you can really feel people are trying to make a difference. Notwithstanding the various "news scares" it is still the place to be vis-à-vis pure energy and things to do. I have always believed as the famous song says "if you can make it there you can make it anywhere" is very true. I am fortunate my very earliest days after the military and university were spent there. I would recommend at least a couple of years in "the meat grinder" to anyone who wants to cross intellectual and emotional swords with more than worthy opponents!

MAN PLANS – GOD LAUGHS!

I am sure you are surprised I am following up so soon with another newsletter. In candour I was surprised at response on my last letter. Someone even commented how my analysis of "valuing a deal" was so fascinating. God! It was all consultancy gibberish! For those of you that read THE ENTIRE LETTER you know it was a spoof on consulting and what my experience has been over 30 years with high priced merchants of gloom, doom and occasional happiness! Almost all producing mountains of useless information! You would not have known this unless you read almost to the end. It was like sex! It was all at the end! Though you should have realised it in the first few paragraphs I was "making fun." I could make an analogy about only getting "part of the info" and making decisions, but I won't. Analogies vis-à-vis the Internet and succinct bites of info (which the letter clearly wasn't) could be made in exactly the opposite way. So be it!

Suffice it to say I was greatly amused during the writing process of that long newsletter. I wondered how many would read it to the end? I guessed correctly. And as my wife and some that know me longest have said countless times, what makes me laugh isn't necessarily funny to anyone else! My own 15 year old daughter asked me not to send her the newsletter anymore! Well, man plans and God laughs! I told her she would continue to receive it!

I also asked at the end of that newsletter for suggestions on what you would like to read in future newsletters. (This offer is still open). I got two subscribers giving suggestions, so far. Perhaps they were the only ones who read the entire newsletter! As you can imagine my feelings ARE NOT HURT!

THREE APPROACHES

During this time of perceived tough economic times I thought I would attach three short stories from a newsletter I read regularly (and recommend) about men in the business of finance and how they deal with motivation, teaching and the task of keeping people focused. They clearly state there is more to doing deals than the numbers themselves.

To Your Quantum Leap
Daniel S Peña, Sr.

P.S. I've attached a recent photo taken by my son Dan Jr. who is working as TGG intern for the Summer. Whilst taking many photos of Guthrie and the environs he captured what some believe to be the "Nannie Ghost of Guthrie" holding a baby. She is friendly as is the "Lady Ghost of Guthrie".

 

The following stories where in a recent newsletter distributed by The Deal.com. If you wish to receive their daily newsletters you simply go to www.thedeal.com and sign up.

 

LETTER #1 – THE ALL AMERICAN

 

It only seems appropriate to describe Paul Rossetti, 53, a managing director o American Securities Capital Partners LP, as All-American. To say otherwise about the former U.S. Air Force Major, who is a baseball fanatic, seems almost unpatriotic. Most recently, Rossetti has been helping the firm's younger staffers stay enthusiastic about private equity as the industry endures a difficult period reminiscent of the early 1990s. "Our challenge is to keep our young people motivated in the face of not a lot of interesting deal work," he says. "That gets back to our discipline of only buying good companies – the hardest part of our business is having the discipline to wait." Rossetti knows discipline well. That aspect of his personality helped bring him all the way to American Securities Capital Partners, a firm that has done 12 investments with a total transaction value of $1.3 billion. The firm is the merchant banking arm of Sears, Roebuck and Co. heir William Rosenwald's American Securities LP. Rossetti's path to the American dream took him through the socially volatile 1960s. While millions of Americans were rebelling against the establishment, Rossetti was busy plugging into it. An honor roll student from a small town in upstate New York, Rossetti had been accepted at all of the top Ivy League schools, but chose the U.S. Air Force Academy in Colorado Springs, Colo. The U.S. Senator who recommended him? Bobby Kennedy. In 1973 the Air Force shipped Rossetti to Thailand and he began flying combat missions over Cambodian jungles in an A-7 Corsair. He spent the next 11 years in the Air Force, becoming a test pilot and rising to major."As a professional pilot, it was a very rewarding experience to do what you are trained to do, and do it well. At the same time, it's combat, and that part of it was not pleasant, but we believed in what we were doing," Rossetti says of his experience. No question, Rossetti's military experience served as a cornerstone for his private equity career, friends say. As conformist as Rossetti seemed, he marched to his own beat, setting his own objectives and achieving them. If there was one lesson the military had taught him, it was that failure was not an option. Take Rossetti's stint at Harvard's Graduate School of Business Administration in the 1980s. He didn't just ace his exams; he graduated with an M.B.A. in 1983 with distinction as a Baker Scholar – an honor reserved for students in the top 5% of their class."The thing you learn from military experience is to have a great simple strategy or business plan, and execute it well," Rossetti says, making it sound as simple as that. Rossetti's plan, post-Harvard, was to work for Bain & Co. and then move into private equity two years later. He really cut his teeth in private equity dealmaking by joining Dyson-Kissner-Moran Corp. in 1986, overseeing operating companies and acquisitions such as the firm's purchase of U.S. Leather Holdings. In that deal, the firm bought a leather-processing company, doubled its size and sold it two years later for twice the value of its purchase price. In 1997, after stretches at Greenwich Street Capital Partners and Patricof & Co. Ventures, Rossetti joined American Securities Capital Partners where he has worked on such transactions as the firm's purchase in April 2000 of Vutek Inc., a deal in which the firm raised its bid three times to consummate its acquisition of the inkjet printer maker."We found out this was a terrific company and paid a lot more than we would have ever dreamed when we started the process. But the company checked out, and we said we would pay whatever it took," Rossetti says."Our mission is to identify where we are the best buyer and our strategy is to create value for our portfolio companies. You can't just be along for the ride."

 

LETTER #2 – THE CHAIRMAN

 

"The biggest challenge of the past five years is the pace at which we're required to practice law," says Barry M. Abelson, chairman of the executive committee of Philadelphia's Pepper Hamilton llp, a firm with 400 lawyers. Abelson, 55, has been at it for 30 years, and he still describes his day as "a maelstrom of activity." He has a client base in three distinct areas: privately held businesses for whom Pepper is general counsel, which require financings and acquisition work; midmarket public companies, which have the same needs, along with disclosure and Securities and Exchange Commission work; and a venture capital and private equity fund practice, which represents the funds in their formation, governance and financing activities. The firm's chairman since February 1995, he says much of his job is to train younger lawyers to be "reflective rather than responsive" – a challenge in the age of instant e-mail. But he sees his lawyerly responsibility – and that of the firm, which dates back to 1890 – as providing deliberativeness, whether or not the clients realize they need it. "Too many clients assume speed of responsiveness fulfills our professional responsibility," Abelson says. "But many of these companies don't have in-house counsel. Our clients rely on us." That dependence may grow even greater in the wake of Enron. "For middle-market companies, I think there will be a severe impact on the ability to get qualified independent directors willing to serve, and it's the group of companies who would benefit the most from having independent and qualified directors," Abelson says. The first person in his family to have gone to college – in this case Dartmouth, lured by a strong financial-aid package – Abelson trained for a law career by being the sports editor of the college paper. "It was a four-to-six hour grind a day, on top of a full-time course load," Abelson remembers. "It was good training working under pressure." Which, despite the current slowdown, still exists. Abelson notes that Pepper is working on three major transactions on the buyout side and six on the venture side. "We're seeing funds being more proactive creating opportunities; they're looking for management teams to do carveouts. The number of transactions may be down," he says. "but the creativity from the clients is up."

 

LETTER #3 – THE COUNSELOR

 

Mark Vidergauz gains clients in fashion by not following it. As the founder and chief executive officer of The Sage Group llc, a Los Angeles merchant bank specializing in middle-market transactions, he works with small businesses, entrepreneurs, even fashionistas. In this dynamic environment, his background as a lawyer – and his conservative temperament – are his biggest assets."A lot of what we do is building trust," says Vidergauz, who agrees that trendy, celeb-conscious entrepreneurs can be somewhat skittish of bankers. "We say, 'We can help you as we've helped others,' but you make sure that throughout the process they make the decision. We're in this for the long run; if a deal doesn't close this year, it'll close next year." The big score for Sage, which was founded at the end of 2000, was brokering the $86 million sale of Earl Jean to Nautica Enterprises Inc. The husband-and-wife team who founded the jeans company by investing $2,000 were happy with their payout in the April 2001 transaction, which found J.P. Morgan Chase across the table."Our approach is to treat every $100 million deal as if it was a $5 billion deal," Vidergauz says. "Often what we will do is identify a fine company and get to know the business – they'll say we're thinking of selling this biz in the next two to three years. A large firm would say, 'Call us when you're ready.' We'll show them where they can put investments in their business that Wall Street will value." Born in Krugersdorp, a small town in South Africa near Johannesburg, Vidergauz trained as an attorney. A decision to go into banking – to experience the dealmaking side rather than technical side – brought him to Barclays Merchant Bank, one of the four leading investment banks in South Africa, where he became a director. After his daughter was born, a mid-career move to the United States caused him to switch back to law. Vidergauz made the decision with typical deliberation, noting that it meant "going backwards quite a lot.""We'd just completed the largest IPO [Southern Life] in South African history," he says. "[But] banking to banking didn't feel comfortable. Maybe it was insecurity, but I felt I had spent a lot of time becoming an attorney and I should validate that credential." He certainly did, at top firms Morrison & Foerster LLP and O'Melveny & Myers LLP. Finally, the frustrated banker went to work for Wedbush Morgan Securities, a mid-market L.A. firm, and was hired in 1996 by ING Barings to build a middle-market M&A effort."They wanted a headquarters in L.A. because the companies in L.A. were small-cap and entrepreneurial," Vidergauz remembers. Over the next five and a half years, the shop did $8 billion of total transaction value – much of that $150 million and $200 million deals. Then Vidergauz left to form Sage, which was backed by Rockwell Schnabel, founder of Trident Capital, Bradford Freeman, founder of Freeman Spogli & Co., and a trust affiliated with Robert Day, founder of TCW Group."Most of the major firms have had a middle-market presence in L.A. at one point, but can't make the numbers work," Vidergauz says. "We felt we should reach, and since ING didn't have a recognizable name on the West Coast, in some ways we'd already done it once." The bank, which opened its doors at the end of 2000, was certainly founded in a challenging environment. But Vidergauz says the middle market has its own dynamic. "Partners fall out, there can be shareholder disputes; you don't see that when GE is selling a division," he says. Now the firm, which does industrial as well as consumer products work, is a middleman between trendy left coast startups and more mature East Coast businesses. "Large New York Stock Exchange consumer products companies call and say, 'Do you have anything in accessories?' Vidergauz says. As for PE funds, "We probably have an East Coast fund in our office every day or every second day," Vidergauz says. "They're clearly under pressure to put money out. PE funds will tell you quietly they are willing to accept lower returns." He expects the real uptick in closings to be the fourth quarter. Meanwhile, he'll continue to hold clients' hands."Starting out, there are two or three people they trust, maybe a spouse, maybe an attorney," Vidergauz says. "But once you enter that circle of trust, they confide everything. I have one guy who called – we closed the deal eight months ago. I said, 'Michael, why are you calling?' and he said, 'separation anxiety.'"