Coleman Company

The Coleman Company is a renowned American brand famous for its outdoor recreation products, particularly its iconic camping gear like lanterns and stoves. Founded in the early 20th century, the company built a formidable reputation for quality and durability, becoming a household name for generations of campers and outdoor enthusiasts. While the Coleman brand itself is a staple in garages and campsites across the world, in the investment community, its name is synonymous with one of the most famous and spectacularly successful Leveraged Buyout (LBO) deals of all time. Orchestrated by the legendary corporate raider Ronald Perelman in 1989, the acquisition and subsequent restructuring of Coleman serves as a classic case study in Value Investing, corporate finance, and the art of unlocking shareholder value. The company's journey from a family-controlled business to a key asset in Perelman's empire, and its later sale to Sunbeam (and eventually Newell Brands), is a masterclass in financial engineering and brand management.

In the late 1980s, The Coleman Company was a solid, profitable, and well-regarded business. However, to a shrewd investor like Ronald Perelman, it looked like a sleeping giant. Its stock was trading at a modest valuation, and its balance sheet carried very little debt. It was, in essence, an undervalued asset with a powerful, globally recognized brand, making it a perfect takeover target.

In 1989, Perelman, through his holding company MacAndrews & Forbes, acquired Coleman for approximately $545 million. The magic of the LBO model is that he didn't pay for it all with his own money. The deal was structured with a massive amount of debt, using so-called Junk Bonds to finance the purchase. Perelman's firm reportedly put up only about $24 million of its own equity. This is the core concept of leverage: using borrowed money to amplify potential returns. By using debt, Perelman controlled a half-billion-dollar company with a relatively small down payment. If the investment paid off, his returns on that small slice of equity would be astronomical.

Once in control, Perelman didn't just sit back. His team executed a textbook LBO strategy that went beyond simple financial maneuvering.

• Streamlining Operations: Perelman's management team focused on improving efficiency and cutting unnecessary costs.
• Selling Non-Core Assets: Coleman had several divisions, including a business that made air conditioners for recreational vehicles. This was a decent business, but it wasn't the core of the Coleman brand. Perelman sold off these non-essential parts, a practice sometimes called Asset Stripping, to raise cash and pay down the acquisition debt more quickly.
• Focusing on the Brand: The team doubled down on what made Coleman great—its powerful Brand Equity. They focused on the core outdoor products that customers knew and loved.
• The Exit Strategy: Just two years after taking the company private, Perelman took it public again through an Initial Public Offering (IPO). The IPO raised hundreds of millions of dollars, allowing him to pay off a huge chunk of the debt while still retaining a majority stake. Over the next few years, he sold his remaining stake, culminating in a final sale to Sunbeam in 1998.

The result? Ronald Perelman turned his initial $24 million investment into a profit estimated to be over $1.5 billion. It was a stunning success that showcased the immense power of the LBO model when applied to the right company.

While you probably aren't planning a multi-billion dollar corporate takeover, the Coleman saga offers timeless wisdom for any value investor.

1. Look for Hidden Value: The market saw a steady, perhaps boring, company. Perelman saw a world-class brand with an underutilized balance sheet. Always ask yourself: “What is the market missing?” Often, the greatest value lies in intangible assets like brand reputation or in underleveraged financial structures.
2. Understand the Power (and Peril) of Leverage: Perelman's use of debt was the key to his massive return. For individual investors, this serves as a powerful reminder that leverage—whether through buying stocks on margin or using debt in real estate—is a double-edged sword. It can magnify gains but can also wipe you out if things go wrong.
3. A Catalyst Can Unlock Value: For Coleman, the catalyst was Perelman's acquisition. When you analyze a potential investment, look for a catalyst that could change the company's story and force the market to re-evaluate its price. This could be a new CEO, a product launch, a share buyback program, or a spin-off of a division.
4. Focus is a Virtue: Perelman's strategy of shedding non-core assets to focus on the primary business is a crucial lesson. Companies that try to be everything to everyone often fail. A business with a clear focus, a deep competitive moat, and a dominant position in its niche is often a far better long-term investment.