Tugman became CEO of Marsulex in 2004. “I felt like I had been in training for most of my career to become the CEO. It wasn’t as if I suddenly found myself with the job, not knowing what to do. I felt I knew exactly what I wanted to accomplish.”
The ownership of Marsulex had changed in 2001. It had become a public company in 1996, but was still private equity controlled. TD Capital bought Marsulex’s private equity owner Harrowston in 2001 .The TD Capital managers subsequently formed Birch Hill Equity Partners.
“I was appointed to help realize on shareholder value and help Birch Hill exit the investment. I approached the board and communicated that there was an opportunity to do more with the company. My strategy would include a combination of acquisitions and organic growth through a period of time to create more shareholder value.
His strategy was a success. Rather than being a short-term CEO for an exit, Tugman held office for close to seven years and the company became substantially larger. The number of employees tripled and the revenue doubled. “From a profitability point of view, it was close to three times. There was no more equity put into the business and we actually paid down debt. I was running the operations from the time Birch Hill/TD Capital took over and by their measures there was a four and a half times return of capital for them and over $200 million of value created.”
Reflecting on his major learnings from the experience, he mentioned that “most CEOs need to be conscious of the statistic concerning CEO longevity — and it’s something like eighteen months. You need to survive more than a couple of years and you need a plan in terms of what you will do with the business. Even if you have three to five years of success, you will have to reinvent yourself and the company. Most strategies only last for that amount of time. “
He feels that there are a host of reasons why CEOs fail early. “The complacency can set in and if you don’t reinvent yourself, you are going to hit a wall. That was something I was very cognizant of.”
He notes that a CEO of a private equity-owned company must create shareholder value. “All CEOs need to do this. The difference for private equity is that you also want to be able to liquidate and exit the business. You have to make sure that you can take the company to the next level and, at the same time, you have to be ready to leave.”
After seven years, it was time for an exit. “The more successful you are, the more likely it is that you can create that value and that exit for the shareholders. It is always a challenge to see all that disappear. At the time, he had mixed feelings. “The reality is you have done your job well, it’s hard to let go.” In his case, it wasn’t liquidation. Most of the employees continued on but the management team didn’t. “Ironically, you have spent a lot of time and effort creating a management team because you have the option of running the business. But at the same time, if the business is sold, that management team will be dispersed.”
The Marsulex management team was composed of six divisional people, on the next level down. His direct reports left, with the exception of one.