Ron Weinberg has had a storied career as an entrepreneur, an innovative financial thinker and a dealmaker.
Back in 1993, the lead underwriter of an initial public offering lost its financial backing and was forced into immediate liquidation. Just days before Christmas, Weinberg was determined to find a solution. He refused to quit and ultimately found a new underwriter, which led to a successful IPO that raised nearly $11 million for New West Eyeworks.
“One of the unwritten rules in finance is that you don’t try to finance anything in December because everybody’s away for the holidays,” Weinberg said in a 2002 interview with Smart Business. “We violated every rule with that odyssey.”
All these years later, Weinberg still loves the art of crafting a deal and all the work that goes into it.
“I look at dealmaking as an opportunity to have a business that we grow, whether we invest in a company or a buy a small- or medium-sized business,” says Weinberg, director and principal at Weinberg Capital Group. “It’s a step in a process to create something, to take a company and make it better. Aside from being financially rewarding — which whenever you make a business grow, it is — sometimes you get equally motivated by the process of making it happen. If you love doing that, it’s fun.”
Weinberg has had great fun sharing his dealmaking expertise through Weinberg Capital Group and building successful businesses. New West Eyeworks, SunMedia Corp. and Hawk Corp. all experienced tremendous growth under Weinberg’s leadership. Hawk, a leading supplier of friction products for brakes, clutches and transmissions, grew from a 70-employee company with $19 million in sales to a business that sold for more than $400 million in 2010.
We spoke with Weinberg about the origins of today’s active private equity market and his hands-on approach to creating opportunities that lead to profitable deals.
Back in the day
Nowadays, it’s very routine to use asset-based lending where banks take collateral for the loans they make. There was a time when they didn’t do that. For a lending institution to take collateral, it was something certain ones did. But respectable businesses that borrowed from banks, they didn’t have to let the bank put a lien on their assets. When private equity first started taking off, the right for a lender to put a lien on the assets just invoked a whole new kind of financing, enabling people to buy companies that they couldn’t have bought before.
It gave young entrepreneurs a form of leverage that they didn’t previously have. Later, there was a change in what became known as the prudent man rule for fiduciaries. They were able to make private transactions, things that are now called alternative transactions, which have become an everyday thing in the investment world. That was a new thing back then. Some of that is what enabled the very rapid growth of private equity in the last 30 or 40 years.
Get in on the ground floor
We get very involved and hands on in our companies. You have a group of managers in a company and they see stuff. If you talk to them and encourage them, they are going to learn from a customer what things it is that they want. That’s what it’s all about. What does a customer want? What new ideas do they have? I call them adjacencies. What are the adjacencies? Things that are right next to what that customer is buying from you that we might be able to add as a product line.
Educate yourself in what’s happening in that industry and what’s out there. Get involved in an industry and go to trade shows. Oftentimes, you’ll see a need where there’s a niche or a particular product that’s a competitive product that is very expensive. Can that product be built with equal quality and less cost through some type of innovation or quality?
We are watching what the customer wants and we look for opportunities to create patentable ideas. We had one company where we made equipment for heavy duty mining trucks. We made a brake pad company that had a product that lasted five times as long. We have a company now called Channel Products where we make ignition systems and safety systems for anything that burns gas. We have a number of innovations and patents that we’ve been awarded for a product that we created. We have engineers and we are just watching. A lot of it is people and creating a mindset and an environment where we encourage creativity.
Many people we look to buy from want to sell, but then reinvest back in the company or keep part of it. It gives them more liquidity than they have ever had in their lifetime. At the same time, they have a future stake in the business and very often, they continue to run it. We’ve had people that sold their business, came with us for a period of time and ended up getting more the second time than they did the first because of the piece that they kept. People seem to be more aware of who they want to partner up with if they are selling, particularly if they want to keep a piece and stay around. People can have different reasons for selling. Some are good and some may be threatening to the business. You definitely want to understand what that reason is.
The Last Word
You try to make judgments about the timing of a deal. You also try not to overpay, no matter what the timing is. But clearly, you’ll have the bottom of the cycle and that’s when it’s the very hardest. You think, ‘Wow, it would have been wonderful to buy a business in 2010 and just ride it up.’ In 2010, you might be buying something at six times earnings and there aren’t a lot of buyers. But you can’t find a bank that will lend you that part of the money. It always takes a measure of conviction to look at the risk and think of what you would do with it.
You can buy a good business right now in 2018 when people would acknowledge we’ve been on a real boom. There could be a downturn and you just don’t know. Look at the particular industry and think about how you would survive. Don’t put too much leverage on it and be cautious about prices. We’re always looking and always thinking there could be something out there that we’re interested in. To me, the one single thing that we try to do is to pay attention to what’s important. We have to stand by our principles and the rest really doesn’t matter that much.
How to reach: Weinberg Capital Group, www.weinbergcap.com