Furniture Brands' new owner has strong record
KPS Capital Partners, approved Friday by U.S. Bankruptcy Judge Christopher Sontchi as the new owner of Furniture Brands International, does not buy any business to own it for the long haul.
But it buys to rebuild and grow, and its track record may give hope to workers at Furniture Brands’ properties.
Private equity firms have a reputation for stripping companies of assets, slashing jobs, closing plants and piling companies with debt.
KPS has a reputation for trying to protect the workforce at companies it buys, which has endeared it even to unions.
That’s not to say that KPS will not make changes that will cost jobs, however. In a March 2009 story in the Financial Times, KPS co-founder Michael Psaros said, “We close plants and we have moved many people,” but his company believes in transparency and communication with workers, and its goal is to build healthy, growing businesses.
In that same Financial Times article, Thomas Buffenbarger of the International Association of Machinists praised how KPS handles labor issues.
“They are willing to share information with unions, so they are seen as a partner we can work with,” he said.
In 1982, one of the founders of KPS, Eugene Keilin, engineered one of the country’s earliest employee buyouts at a steel mill in Weirton, W.Va., that was in danger of closing.
After striking out on his own in 1990, Keilin hired Psaros, whose father had worked at the Weirton steel mill and who credited Keilin with saving his hometown.
In 1998, Keilin, Psaros and David Shapiro founded KPS.
Earlier this year, KPS was awarded its second consecutive “Turnaround of the Year” by Buyouts, a trade magazine, for its investment in North American Breweries Inc., which started with the purchase of High Falls Brewery in 2008 and included the purchase of Independent Brewers United in 2010.
During its four years of ownership, KPS nearly doubled employment at High Falls’ operation in Rochester, N.Y., and added a brew house, Buyouts reported. North American became the No. 3 U.S. brewer and in December was sold to a Costa Rican company, Cerveceria Costa Rica SA, for $388 million.
Two months earlier KPS sold HHI Group Holdings, a collection of five failed auto-parts suppliers acquired in 2005, for $750 million, making a total of more than 10 times its investment, the Wall Street Journal reported.
Earlier this month, KPS received Private Equity International’s “Operational Excellence Award” for its turnaround of HHI. In its publication detailing this and other awards, Private Equity International noted that HHI succeeded despite the near collapse of the American auto industry in 2009.
A search through the products made by companies that KPS has bought and turned around reveals no obvious common denominator. Beer. Auto parts. Waterford Crystal. Paper. Now furniture.
But in a March 2010 article in ABF Journal, a magazine focused on the finance and turnaround-management industry, Psaros noted one common feature of the companies KPS invests in: “We look for great companies that have been managed … or better said, mismanaged, into the ditch."
And one thing at least seems certain: Furniture Brands CEO Ralph Scozzafava and the company’s top management may soon be looking for new work. Psaros told the ABF Journal that when KPS invests in a company it will bring in, without exception, a new management team. “We would never invest our capital behind a management team that has caused a train wreck.”
Workers and furniture industry analysts have been sharply critical of Furniture Brands' management during its years-long period of cutting jobs and losing money. Among the most pointed has been Budd Bugatch, an analyst at Raymond James in St. Petersburg, Fla., who has pointed out among other things that the company’s executives received a bonus that coincided with the termination of about 1,400 employees, and that the company filed what Bugatch called distorted fourth-quarter sales last year to meet targets needed for bonuses to executives.
Workers also might expect to see a new emphasis on productivity and the product, with a focus on "understanding where our companies are making money in terms of the products they are selling and the customers they are selling to,” Psaros told ABF Journal.