Shareholder and Bondholder Musical Chairs

October 6, 2009
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Do remember as a child playing musical chairs? While the music played you walked in a circle with one less chair than there were children. When the music stopped everyone scrambled to sit in a chair. Everyone won but one who was out. This was repeated until one lucky child won the last chair. Was everyone really a winner or all losers except one?

A recent New York Times cover page article, Buyout Firms Profited As Company Debt Soared, reminded me of this children’s game. But it was real life. It is a sad description of how the 133-year-old Simmons Bedding Company headquartered in Atlanta was sold seven times in a little more than two decades after being owned by a parade of private equity investment firms. The last owner has now filed for bankruptcy protection. A fourth of Simmons roughly 4,000 employees were laid off last year as the company declined. It was crushed by an unpayable debt of $1.3 billion that grew from only $164 million in 1991.

Perhaps if the principles of performance management methodologies had been followed this company would be thriving, not humbled. James Taylor, the popular IT analyst and blogger, describes in his blog Survive, thrive and capitalize ..



Do remember as a child playing musical chairs? While the music played you walked in a circle with one less chair than there were children. When the music stopped everyone scrambled to sit in a chair. Everyone won but one who was out. This was repeated until one lucky child won the last chair. Was everyone really a winner or all losers except one?

A recent New York Times cover page article, Buyout Firms Profited As Company Debt Soared, reminded me of this children’s game. But it was real life. It is a sad description of how the 133-year-old Simmons Bedding Company headquartered in Atlanta was sold seven times in a little more than two decades after being owned by a parade of private equity investment firms. The last owner has now filed for bankruptcy protection. A fourth of Simmons roughly 4,000 employees were laid off last year as the company declined. It was crushed by an unpayable debt of $1.3 billion that grew from only $164 million in 1991.

Perhaps if the principles of performance management methodologies had been followed this company would be thriving, not humbled. James Taylor, the popular IT analyst and blogger, describes in his blog Survive, thrive and capitalize with BPM numerous examples of organizations that have applied performance management to be successful.

What is more sad about Simmons is every private equity firm made money including its last owner, which netted about $77 million by collecting hundreds of millions of dollars from Simmons in the form of special dividends. This private equity firm also paid itself millions more in fees to acquire Simmons and then to manage it. Manage it? The executive the private equity firm brought in to run Simmons, who worked remotely from his Florida estate, earned $40 million in compensation, bonuses and perks before stepping down. Wall Street firms also handsomely profited by arranging each takeover and by selling the bonds that made this all possible including to the unfortunate final bondholders. There were no more chairs for them when the music stopped.

Is this the temporary creation of artificial wealth that is real to each buyout firm but destructive to an economy?