2005: IMG in transition
Wednesday, August 31, 2011
Welcome to Ted Forstmann’s IMG.
It only has been five months since a group of investors led by Forstmann, the renown buyout maverick, acquired the management firm that was uniquely created and shaped by one man, Mark McCormack. But with the founder’s death in 2003 drifting further into the past and Forstmann grabbing the company’s reins, IMG is in a state of transition and its future is far from being settled.
Most of Forstmann’s actions – installing his own management team, for example – are part and parcel of acquisitions. But eyebrows have been raised over who’s in his circle, and who’s not. Case in point: Forstmann assembled a four-man council, the “Office of the Chairman,” but excluded from it longtime IMG steward Alastair Johnston, who had served as co-CEO.
The company’s golf division, loaded with marquee names including Tiger Woods, Annika Sorenstam and Vijay Singh, has remained virtually untouched. But IMG is in the process of trimming about 200 jobs elsewhere in the organization.
For the first time in its history, IMG also is considering a stock option plan to incentivize its top performers. And a new cost-conscious mantra is permeating the company’s headquarters in Cleveland, Ohio, as well as its satellite offices around the globe.
What does it all mean? Forstmann is prepping IMG for yet another sale.
“Remember, Ted Forstmann is working for his investors, and at some point he has to sell or go public to make a profit for them,” says Eric Gleacher, a New York investment banker and former U.S. Golf Association secretary who served as Forstmann’s financial adviser in the IMG transaction and also invested in the $750 million deal.
As startling as the idea of a resale may seem, Gleacher and others familiar with the IMG deal say this is a natural progression for a family-owned business that has been acquired by a private equity firm.
“The company is already profitable, and it will be even more so under Ted,” Gleacher says. “Then, it is a question of market conditions and when they are right.”
Such a window of opportunity likely will open within four or five years, which is generally the time frame for resales in private equity deals. Meanwhile, Forstmann and his cadres no doubt will continue with their changes to make IMG even riper for sale.
That will occur in an emerging corporate culture where bottom-line prosperity, and not necessarily top-line growth, is paramount, and the question – “What does it cost?” – resonates as the company’s new mantra.
“We are leaner, meaner, and much more bottom-line oriented than we once were,” says Barry Frank, vice chairman of TWI, the highly profitable television production division that generates roughly half of IMG’s revenues.
That is a consensus opinion among several IMG employees interviewed for this article, many of whom requested anonymity for fear of angering Forstmann.
“Mark (McCormack) was always interested in growth, but the main interest now is in profits,” says one longtime insider. “Mark would investment spend, and he did not look so closely at short-term expenses if he thought there would be a long-term payout. But the guys in charge today want a more immediate return.”
Adds another IMG veteran: “I am always being challenged (these days) as to whether I am doing something in the most cost-effective way.”
But even those who work within IMG suggest the new operative style isn’t necessarily bad, just different.
“Remember, Mark did not buy this business, he developed it,” says Sandy Montag, a senior vice president who represents IMG’s stable of broadcasters, among them Bob Costas and John Madden. “It’s quite a different mindset when you have paid hundreds of millions of dollars for something and expect to sell it. In that case, you are looking for a good return and a way to make it as efficient as possible.”
Montag and others maintain that IMG has managed to continue growing while learning how to tighten its belt. More important, they insist IMG hasn’t surrendered its business acumen or its entrepreneurial spirit that made the company the undisputed leader of its field.
However, a cost-conscious mentality does yield casualties.
At the time of McCormack’s death in spring 2003, IMG boasted 85 offices in 33 countries and employed nearly 3,000 people. Following McCormack’s death, co-CEOs Johnston and Bob Kain began positioning IMG for sale and shrunk operations to 60 offices and a staff of 2,200. Forstmann is expected to whittle further, reducing the number of employees to roughly 2,000.
Some of the most intriguing personnel changes, however, have occurred at the top, most notably the move of Johnston to vice chairman.
Before ascending to co-CEO in early 2003, Johnston was the longtime chief of IMG’s golf division and handled Arnold Palmer’s business interest for years. He also shepherded the company’s lucrative relationship with the Royal & Ancient Golf Club of St. Andrews.
He still sits on IMG’s board of directors and retains a powerful position because of his ties to Palmer and the R&A – important IMG clients who bring in reams of cash. But Johnston’s days at the company clearly are numbered. He declined to discuss his new role, only saying that he’ll work on a variety of projects and exit IMG in a couple of years.
In other moves, IMG insiders say Forstmann has assumed the title of chairman and appointed Kain president of IMG. (Forstmann and Kain also declined to comment.)
Leading the company is Forstmann’s newly created Office of the Chairman, a braintrust that includes Kain; Bill Sinrich, the London-based chief of TWI; Bob Ryder, the former American Greetings’ chief financial officer who recently assumed the same post at IMG; and Forstmann.
In addition, Forstmann has entrusted two men from his buyout firm, Tom Lister and Geoff McKay, to be his “guys on the ground” at IMG.
The company has been organized into four business units: TWI; Golf; Academies; and Sports and Entertainment (led by longtime IMG executive Peter Johnson). The golf division, which produces about a quarter of all IMG revenues, continues to be run by Mark Steinberg – who represents Tiger Woods and Annika Sorenstam, among others – and Guy Kinnings.
The new regime also is promoting a stock option plan that would give as many as 100 of IMG’s best performers their first opportunity to buy into the $1 billion company – and cash out when Forstmann decides to sell it.
Several employees interviewed within the company say the plan has been received favorably, but some managers expressed concern that the new benefit will be factored into compensation packages. That likely will diminish cash bonuses in the future, but keep with the new corporate culture as Forstmann and company dress up IMG for the altar.