Some people just have that Midas touch in business. That is certainly the case for Harold Simmons, who overcame humble beginnings to become a multibillionaire. But his story, despite his successes, is really a cautionary tale as the methods he used to obtain great riches not only took away some of his richness in life, but could have ended rather badly if everything didn't always go his way.
Developing a unique strategy
Harold Simmons was born into a poor family; his parents were schoolteachers in rural Texas and couldn't afford more than a little shack without plumbing or electricity. However, if there's one thing his schoolteaching parents instilled in him, it was the importance of an education. As a result, he not only went to college, graduating as a Phi Beta Kappa, but he also earned a master's degree, which was a rare feat in the early 1950s.
After completing school, Simmons took a job with the U.S. government as a bank examiner. It was at that job that he began to see that banks used a prodigious amount of leverage to grow their operations and in a sense used all debt and no equity. As a result of this Simmons, developed a personal capital management philosophy based on using all debt and no equity to fund growth business growth outside of the banking world.
It was a philosophy he put into practice in the early 1960s as he started off on his own and bought a small drugstore for $100,000 using just $5,000 of his own savings and a $95,000 loan to fund the purchase. That first pharmacy purchase was the first of many as he used it to fund the acquisition of 100 stores before selling the chain in 1973 to another larger pharmacy company for $50 million.
Simmons' strategy pays off
Simmons used his $50 million payday as a springboard to buy other companies. Over the years he acquired businesses in a variety of industries including savings and loans, fast food, steel, chemicals, sugar beet processing, and vineyards. Many of these deals were funded with debt as Simmons became one of the architects of an acquisition strategy known as a leveraged buyout, or LBO, which used virtually no equity and a whole lot of debt to take over companies that could be restructured in order to increase profitability or value. It was a strategy that really paid off for Simmons as he was worth an estimated $10 billion according to Forbes around the time of his death in 2013.
Holding on a little too tightly
Before he died, Simmons was known to be very generous with his wealth, giving away an estimated $500 million to charity within his lifetime. However, it was his early desire to hold on to his wealth that really tainted his legacy. Before he sold his pharmacy chain, he set up a trust for his daughters and named himself sole trustee. However, the trust was more of a tax shelter than for estate planning, and in the late 1990s he tried to restructure the trusts. Due to poor timing and distrust over possible mismanagement, two of his daughters sued him. While they eventually settled out of court, resulting in Simmons paying each of them $50 million, it soured their relationship. As a result, the whole ordeal cost him much more than money, as he stopped talking to both daughters after settling the suit.
Harold Simmons made quite a lot of money in his lifetime as a result of shrewd business dealings. However, his life really is a cautionary tale, as his story could have ended a lot differently. His reliance on debt could have easily backfired if he bought the wrong company at the wrong time or at the wrong price, as one bad deal could have wiped him out due to the leverage he used. Furthermore, by focusing on ways to keep every last dime of the wealth he created, he lost out on a relationship with two of his daughters. So, while Harold Simmons died a very rich man financially, one wonders if he wouldn't have been just as satisfied with a little less if it had meant he'd not been estranged from his daughters.
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