Tom Lister: What I Learned From Ted Forstmann

Permira’s Co-Managing Partner talks about his career at seminal private equity firm Forstmann Little, and about Ted Forstmann’s remarkable personality and investment philosophy.

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Tom Lister: What I Learned from Ted Forstmann

Don Lipari, RSM:

Hi, I’m Don Lipari. Today I’m joined by Tom Lister, Co-Managing Partner of the global private equity firm, Permira.

Tom Lister, Permira:

Hi. Nice to see you.

Lipari: You went to Duke for your undergraduate, Harvard MBA. In ’93, you joined Forstmann Little. What led you to join Forstmann at the time?

Lister: I think it wasn’t really so much a led question as what the set of the opportunities were. There were only a couple of jobs in private equity. It sounds funny to say that now, but the total industry might have been 100 people at the time. And I got a phone call from a friend who knew somebody at Forstmann Little, that started an interview process and, several months later, I joined. It was sort of the opportunity of a lifetime in what, at the time, seemed—it’s funny to say, but it’s sort of a small business.

Lipari: Talk a little bit about Ted. Bigger-than–life personality.

Lister: It’s funny. Lots was written about Ted. Our firm was only 10 people. And people are always amazed by that. For a long time, I was the only person that wasn’t a partner and I was the only person with a computer at their desk. It seems odd to say those two things, but we only owned a handful of companies. We typically bought one or two every year and all of us, in one way or another, were involved in every single investment, including Ted.

There were a few remarkable things about him. He could play music by ear, he could remember facts that you couldn’t believe he could remember—even though he said he wasn’t into detail, he’d tell you, several weeks later, “Oh, remember you told me this or this about the profitability of the business?” And he was very good at seeing around the corner, so he would look out several years and he’d have a very clear picture of what the business was going to be, what it looked like, how you might make returns. And there were a number of examples in our history at Forstmann Little where we bought businesses and they ultimately turned out to be terrific returns, but in the early periods, we had difficult parts to them. Ted never shied away from those difficult challenges and never failed to make the right investments to make those companies really valuable.

Lipari: You talked a bit about the traits that made Ted remarkable. Talk about a couple of the deals that really stood out during your years at Forstmann.

Lister: Of course, if you go back and you think about what we were really recognized for, one of them was Gulfstream. We bought the business in 1993. It was an airplane manufacturer.

We bought it from Chrysler, but shortly after that, the world was in a tailspin and airplane sales slumped. It’s funny to say that, at the time, we only sold 20 or 22 planes a year and, if you missed by a couple, it was a big problem. The first two years were incredibly difficult, and eight years later we ultimately made 12 or 13 times our money on the investment, taking to public and ultimately then selling it to General Dynamics.

Community Health Systems, which we bought in 1996—by the time we’d finished our work, seven or eight years later, it was the largest (other than HCA) for-profit operator in the country. We did incredibly well with it and, still today, it’s one of the largest for-profit hospital operators from $100 million of EBITDA when we started.

And the last one, which everyone remembers, is IMG, of course.

We bought it. It had not much profitability, it was a family-run business and we turned it over the course of really an eight-year period—it became the last thing Ted worked on—into an incredibly successful business. And, in each one of those cases, the first couple years were tough, right? We had lots of things that didn’t go the way we might have thought and he never said, “Oh, we’re not committed to the strategy. We’re not going to turn away from what we’ve done.” That was what really produced outsized returns in each of those cases.

Lipari: Forstmann life lessons: what did you take with you?

Lister: A couple of things. First was that Ted had a philosophy, and I think our firm had a philosophy, of monetizing or selling things when there was still an amount of money to be made by the next owner. That wasn’t to say we wanted to sell too early, but we had this point of view that it was good for people to do well with what we had owned after we sold it. And that really was a philosophy that I think we’ve carried on, and I’ve carried on since I’ve been here at Permira: making sure that you monetize the investments once you’ve made a good [return]—and, in some cases, an excellent return—but making sure that those businesses had room to grow and continue. That was one of his lessons.

I think the other one was what I talked about earlier, which is not being obsessed by or swayed by quarterly performance or challenges in the beginning. If, in the end, your theory about why you made the investment was correct, you’d ultimately be paid well for it. So, in the cases of an IMG or a Gulfstream, if you go back and think about the first year of that investment, it was tough. And I remember always saying to Ted, “Well, we missed our forecast on this,” or “We’re behind plan.” And his answer always was, “It doesn’t necessarily come out of a computer. You don’t have to focus only on quarterly results. And, if we’re right about the theory, that four or five years from now we’ll make an outsized return on the investment.” I think that’s always an important thing to remember about both investing and, in particular, private equity.

Lipari: What led you to Permira? Why leave Forstmann at that time? What was attractive about the Permira opportunity?

Lister: Let me answer the second part of that first. Ted had decided, in 2005, not to raise another fund. The firm had some challenges and many of us were a lot younger than he was, in some cases—in my case, almost 30 years younger. So, it wasn’t as if we were going to raise another fund. So, over time, and if you look around—which is something I think we’re all really proud of today—the number of people who run private equity firms today came from Forstmann Little.

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