How Does Easy Credit Make Turn Around Specialist out of Financial Genius'?

Implications: This article sheds considerable light on one company's efforts (Sun Capital Partners) to prosper by buying second or third tier troubled companies. They use very little cash and then, using their real or imagined genius as self titled "Turn Around Specialist", try to "make a silk purse out of a sow's ear". How well are they going to do now that the going is getting very rough?

Analysis: The principals of Sun Capital Partners are portrayed in this article as very smart financial guys who assume they know more about the financial engineering of every troubled business than do the leading experts in each respective industry that they target. It has been my experience that it takes a lot more industry savvy to turn around a troubled company than it does to keep a successful company running. Therefore  it seems to me to be the height of arrogance to gobble up troubled companies in a wide variety of industries, every 11 days and expect to be a winner in the long run.

A good example of this arrogance is their acquisition of the Wickes Furniture Company which is currently in the last stages of a bankruptcy sale. They bought this moderately successful but highly leveraged company in partnership with one of the most successful furniture retailers in the world. When a management falling out triggered their buy-sell agreement, Sun Capital decided to buy out their partner! In effect,  they determined that they knew more about turning around Wickes than did their furniture retailing partner!

The formula for any turnaround situation has been to eliminate waste quickly and then apply one's skills to carefully turning around a business that you hopefully have done a thorough job of researching. Sun Capital adds another ingredient to the formula when ever possible, loading up on debt through the sale and leaseback of assets.

Since 1999 when they went from a $28 million company to 2008 when they claim to be a $10 billion company, they have shown some remarkable results with this practice. Now some of their diverse companies are starting to go bankrupt under their heavy debt loads as the economy softens. It will be very interesting to see how smart these fellows appear to be as the economy worsens and their loans become due.