Wednesday, June 15, 2022

One of the most significant moments in Henry B. Tippie’s professional life also turned out to be a key moment in American corporate history.

His role in engineering the leveraged buyout (LBO) of Orkin Extermination Company Inc., by Rollins Broadcasting would triple Rollins’ stock price within one year and make Henry a millionaire.

“On paper,” he was quick to clarify.

It was also an innovation in acquisition financing that changed the way firms acquired other firms in order to grow and expand. Rollins Broadcasting’s purchase of Orkin was considered the first major LBO in American business history, and by all historic accounts, Wayne Rollins and Henry Tippie were the architects.

Orkin was on the market for $62.4 million in 1964. Rollins Broadcasting was worth around $9 million at the time. “[It] sort of seems like the mouse swallowing the lion,” Henry Tippie said of the deal. The entire purchase amount was borrowed, and Rollins Broadcasting’s only exposure was $10 million.

“The kinds of companies targeted for leveraged buyouts are fixer-uppers,” said Erik Lie, the Amelia Tippie Chair in Finance, named for Henry’s mother. “The purchase itself is not necessarily risky. The best targets of leveraged buyouts are cash-rich, underleveraged, and poorly managed.”

Many associate LBOs with the 1980s, said Lie, an era when Wall Street kings earned the reputation of borrowing extreme amounts of money to purchase other companies with hostile takeovers, and some lacked the business savvy or integrity to supercharge it for success like Rollins did with Orkin. Indeed, within seven months of closing on the Orkin deal, shares in Rollins Broadcasting would go from $50 a share to $153, a much better result than many of the infamous 1980s acquisitions.

“If I know Henry, he looked at Orkin and recognized there was a chance to add extra value without excessive risk,” said Lie, who has long had a photograph of Amelia and Henry in his office to honor the benefactor and namesake of his endowed chair. “He was certainly not someone who would feel comfortable with ruining anyone’s life. As an accountant, he was exceptionally well equipped to project cash flow and gauge whether a company could tolerate a heavier debt burden.”

Henry Tippie did just that. “I put together, on a 13-column worksheet in pencil, projections if we could just run the company as it was being run; and if it were making a profit, where it would be,” Henry Tippie recounted later in life. On this 13-column worksheet, Henry Tippie projected earnings up to 20 years out looking at various levels of growth in profits up to 10 percent.

The deal was sealed on September 1, 1964. The investment paid off and Orkin continues to be a thriving company to this day, and the New York Stock Exchange would later add Henry Tippie to its Wall of Leaders.

DYK: The purchase of Orkin by Rollins was the subject of a 1967 Harvard Business School case study. In it, Orkin was referred to as “Pestmort Company Inc.” and Henry B. Tippie was given the pseudonym “Kenneth R. Morley.” 

This article first appeared in a special print edition of Tippie Magazine memorializing Henry B. TippieAlumni are invited to update their contact information with the college to be placed on the mailing list for future print editions.