In 1994, the future looked blindingly bright to Bob Laikin, cofounder and CEO of Wholesale Cellular USA, the Indianapolis based wireless device company that would later change its moniker to Brightpoint. Lenders, however, weren’t as enthused.
Launched in 1989, the company brought in $9 million in its very first year and rapidly ramped up sales in its first five years. By 1994, it boasted 29 employees and annual revenue (1993) of $77 million, with gross profits of about $2 million. “Still, banks wouldn’t fund us,” recounts Laikin, who, 31 at the time, was then the company’s oldest employee. “They said the management team was way too young, that our margins—at about 2 percent— were too low and that they didn’t believe cell phones were there for the long term.”
Wholesale Cellular was in a quandary, unable to access the working capital it desperately needed to invest in additional inventory and fund expansion into the burgeoning international market. Thus began Laikin’s roller-coaster ride on Wall Street. “I talked with [investment bankers] who basically said, ‘Give us 50 percent of your company and we’ll raise $10 million,’” he said. Five months later, Wholesale Cellular’s IPO raised $13.5 million.
The public status and the sudden influx of cash spurred a growth spurt, as manufacturers raced one another to offer unlimited credit. By mid-year 1995, the company was firmly in rapid expansion mode, beefing up its distribution business in the U.S. and abroad as well as moving into logistics. On track to top $250 million in annual sales, Laikin invested in a new headquarters and a cutting-edge, 90,000-square-foot warehouse and distribution complex and changed the company’s name to Brightpoint to reflect its growing breadth and scale.
Recognizing that such a feverish growth pace would demand yet more capital, he once again turned to Wall Street, raising another $34 million with a secondary offering.
By 1998, Brightpoint was flying high—in hindsight too high, says Laikin. Between 1994 and 1998, the company’s market cap shot up from $25 million to a peak of more than $1 billion, and along the way it gobbled up 35 companies in 35 different countries. To fund this steady diet of acquisitions, the company raised $180 million by issuing a series of 20-year convertible bonds in 1997, with terms that allowed buyers to sell them back to the company in March 2003. “Analysts were saying wireless is the future, anything you touch is gold,” Laikin recounts ruefully. “We believed what we were told.”
Hellbent on gaining global ground, Brightpoint quickly burned through the bond money as well as an additional $225 million in unsecured bank debt. “By the end of 1998, we had virtually every problem you’ve ever read a company can have—because we had grown too fast,” says Laikin, who describes an abrupt about-face from growth mode to corporate triage. “We did what we had to do. We let people go, put better systems and controls in place, sold some companies and restructured everything else.”
Over the next few years Brightpoint’s market cap plummeted, dropping to $10 million in 2002. Meanwhile the deadline for the bond buyback was growing ever closer, and cash reserves were too low to buy back the outstanding bonds— although Brightpoint had already bought back $70 million worth—at full value. But satisfying the debt with stock would have meant selling about 90 percent of the company, in the process radically diluting current shareholders’ stakes. To avoid that unhappy fate, Laikin became a man with a mission: convincing bondholders to sell back the bonds early at a steep discount. It was a tough sell, but eventually he lined up financing and convinced the four largest bondholders to play ball. The feat enabled Brightpoint to buy back 85 percent of the remaining $110 million worth of bonds for approximately 60 cents on the dollar, a fraction of their worth on paper.
|Income from Continuing Operations for Q4 08 was negatively impacted by a goodwill impairment charge of $325.9 and $18 million of tax reserves|
SOURCE: Company reports
Leaner and more disciplined, Brightpoint then focused firmly on profitability. Receivables were trimmed from 60 days to 30, and inventory on hand got slashed from 90 days to 30. The company also more firmly positioned itself in the more lucrative—and more difficult to replicate—logistic side of the business, which now accounts for approximately 75 percent of Brightpoint’s total business. Rather than merely buy and sell cellular products, Brightpoint takes over the entire supply chain for manufacturers, handling everything from warehousing and product fulfillment to Web marketing and activation and customer service. “We’re the company behind the company,” says Laikin. “We help our customers differentiate devices with special packaging and programming. For Nokia.com, we’re running the Web site, sending you the product, collecting the money. We manage their flow from the manufacturer to the carrier to the mass retailer—and we do it cheaper than they can.”
Today, Brightpoint has operations in 25 countries, serves more than 25,000 B2B channels, and continues to pursue international growth. “We are focused on implementing our Europe strategy, which revolves around building centers of excellence and creating a shared services center for all back office functions related to finance, HR and legal,” says Laikin.
In 2008, the company posted revenues of $4.6 billion and handled 84 million handsets for more than 25,000 B2B channels. The global economic downturn dampened both unit sales volume and prices somewhat in 2009; revenue was $723 million for the second quarter of 2009, a decrease of 40 percent compared to the second quarter of 2008. But Laikin is confident that Brightpoint’s strong business development pipeline and prospects for international growth will put it back on a growth path.
After all, he points out, the need to trim down and fine-tune to address its financing woes left Brightpoint well positioned to weather the current economic downturn. “We are not chasing top-line and geographic growth the way I did in the ’90s,” says Laikin. “Our margins are increasing. Today, the world is very profitable because our cost structure keeps getting lower and lower.”