{"id":1417,"date":"2021-12-10T09:38:21","date_gmt":"2021-12-10T14:38:21","guid":{"rendered":"https:\/\/www.nepc.com\/private-wealth\/?post_type=newsroom&p=1417"},"modified":"2021-12-21T09:39:13","modified_gmt":"2021-12-21T14:39:13","slug":"bloomberg-chicago-family-record-buyout","status":"publish","type":"newsroom","link":"https:\/\/www.nepc.com\/private-wealth\/newsroom\/bloomberg-chicago-family-record-buyout\/","title":{"rendered":"Bloomberg: Chicago Family Poised for $29 Billion Windfall After Record Buyout"},"content":{"rendered":"
[vc_row][vc_column width=”1\/1″][vc_column_text uncode_shortcode_id=”911659″]Dan Gimbel was featured in a recent Bloomberg article. View the article on Bloomberg’s site here<\/a>.<\/p>\n

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The Mills family has for decades stayed out of the spotlight, avoiding flashy purchases and society pages while quietly running one of the largest medical-supply companies in the U.S.<\/p>\n

That\u2019s all about to change. In the coming days, the Chicago-based clan stands to receive a $28.7 billion windfall, before taxes. It may be the largest liquidity event for a single family, with the proceeds spread among fewer than 30 people and a small group of trusted executives.<\/p>\n

The Millses agreed this spring to sell a 79% stake in\u00a0Medline Industries Inc., whose origins trace to Chicago\u2019s turn-of-the-century slaughter yards, to a consortium of private equity firms in a transaction that valued the company at about $32 billion.<\/p>\n

The deal, the largest leveraged buyout since the 2008 financial crisis, is vindication for a family that reclaimed the business twice within the past 60 years, both times convinced they could make it better and more valuable.<\/p>\n

\u201cMaking health care run better has been our focus for decades,\u201d Chief Executive Officer Charlie Mills said in a\u00a0statement\u00a0when the deal was announced in June. The investment from Blackstone Inc., Carlyle Group Inc. and Hellman & Friedman\u00a0\u201cwill accelerate that strategy,\u201d he said. Goldman Sachs Group Inc. and Byron Trott\u2019s BDT Capital Partners\u00a0advised Medline on the sale.<\/p>\n

As the Mills family weighs what to do with an enormous pile of cash, Medline\u2019s managers, old and new, are charged with steering a suddenly debt-laden business through an industry besieged by supply issues without the tailwinds of a raging pandemic.<\/p>\n

Investors don\u2019t seem too concerned. September\u2019s offering of more than $14 billion in junk bonds and leveraged loans to finance the deal was met with\u00a0enthusiasm.\u00a0The company also raised an additional $2.1 billion of commercial mortgage bonds.<\/p>\n

In Medline\u2019s favor, the family executives — CEO Charlie, his cousin Andy Mills and their in-law, Jim Abrams — will remain in their roles and the family will keep a significant stake. The Millses are rolling $3.5 billion of their equity into the business, allowing them to retain 21% of Medline, according to bond documents seen by Bloomberg.<\/p>\n

For investors, the continuity is appealing. Family owners with a legacy to protect and institutional knowledge might balance the impulses of private equity owners to load up on more debt and go for short-term profits.<\/p>\n

Yet that balance can tip over into tension when it comes time for buyout firms\u2019 exit, according to Patrick Finnegan, an analyst at Fitch Ratings.<\/p>\n

Medline has \u201coperated for decades as a private firm and they\u2019ve enjoyed the benefits of private ownership,\u201d Finnegan said. \u201cNow there are third-party owners that have very material expectations. The two parties need to agree on priorities, resources and capabilities to execute strategies, and do that in a manner that\u2019s going to satisfy all sides. You have the risk of dysfunctional relationships.\u201d<\/p>\n

The deal means the Millses are worth about\u00a0$26.7 billion, after taxes, according to the\u00a0Bloomberg Billionaires Index, catapulting them into the uppermost ranks of the world\u2019s richest families. A Medline spokeswoman declined to comment on the family\u2019s personal financial matters.<\/p>\n

It\u2019s an enormous influx of cash for a family whose fortune has been tied to a private company for generations, and must suddenly figure how and where to invest billions in a heated bull market.<\/p>\n

Oftentimes a big sale marks an identity shock for longtime family business owners, according to Dan Gimbel, principal at NEPC Private Wealth.<\/p>\n

\u201cAll of a sudden they\u2019re in a new business — the asset-management business,\u201d he said, speaking generally.<\/p>\n

Gimbel counsels sellers to understand how cash will \u201ccascade\u201d post-transaction, funneling to pay tax obligations, filling charitable foundation coffers and, lastly, flowing to the investment portfolio.<\/p>\n

Even when offers are irresistibly high — as is the current norm — deliberating over selling can cause friction, Gimbel said. In an interview with the Executives\u2019 Club of Chicago in July, Charlie Mills likened appeasing various family members as \u201cbeing married to a lot of different people.\u201d<\/p>\n

Cash Out<\/p>\n

Originally, the Millses planned to sell just a modest piece of Medline, so family members not involved in running the business could cash out, according to a person familiar with the talks, who asked not to be identified discussing financial matters. However, the process led family managers to realize a bigger sale could bolster the company\u2019s growth while allowing them to keep leadership roles and a sizable stake.<\/p>\n

President Joe Biden\u2019s plan to boost the capital gains tax on the wealthiest also played a role, Bloomberg\u00a0reported\u00a0in June. Had Biden\u2019s proposal to treat capital gains as ordinary income become law, the family would\u2019ve saved more than $4.5 billion by selling this year. The plan ended up being dropped.<\/p>\n

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The Millses twice before parted with their family business. In the early 1960s, Charlie and Andy\u2019s grandfather, Irving, sold Mills Hospital Supply, a company that evolved from his own father\u2019s work sewing butchers\u2019 aprons for Chicago\u2019s meatpackers. Irving\u2019s sons, Jim and Jon, went to work for the acquiring company, Cenco Instruments. The sale upended their expectations of their future careers.<\/p>\n

\u201cIt scared the hell out of me,\u201d Jim recalled in letters cited in his 2019 obituary.<\/p>\n

After five years at Cenco, the brothers struck out on their own, founding Medline as a direct competitor. The new business bore many hallmarks of the old. They sold directly to hospitals to avoid paying middlemen, and constantly sought ways to tweak products and customs in the traditionally staid industry, conceiving things like aloe-coated exam gloves and creatively staged medical-goods catalogs.<\/p>\n

Cost Management<\/p>\n

As business partners, Jim and Jon Mills were a study in opposites. Garrulous and outgoing, Jim wore vivid colors — his style-conscious wife, Vicki, selected his outfits — and kept a parrot at his office in Medline\u2019s suburban Chicago headquarters. Jon was reserved and observant with a dry sense of humor and urbane tastes for things like opera.<\/p>\n

What they shared was a devotion to tight cost management. Medline\u2019s revenue grew at least 10% annually for years as the brothers expanded beyond garments into categories like wound care, surgical trays and lab supplies. The company controlled its entire supply chain, from factories to delivery trucks, that\u00a0along with the family\u2019s disdain for debt, ensured generous profit margins.<\/p>\n

Medline went public in 1972, an event Jim\u2019s son Charlie called a \u201cmajor misstep.\u201d They\u2019d hoped an influx of cash would help them expand through acquisitions, he said in an interview published in the 2005 management book, \u201cThink Big, Act Small.\u201d Instead, the stock slumped and \u201call it ended up with were lots of additional time-consuming reporting requirements and limits to how it could run itself.\u201d<\/p>\n

The family bought back all the shares and delisted the then-$7.5 million business five years later.<\/p>\n

Charlie, Jon\u2019s son Andy and Jim Abrams have run Medline as partners since 1997. Since the deal was announced they\u2019ve emphasized their commitment to managing the business, but there\u2019s scant indication of what the family will do with billions in additional cash.<\/p>\n

Family Philanthropy<\/p>\n

Through Medline\u2019s corporate philanthropy, they\u2019ve supported numerous health, environmental and social justice causes, but individual family members\u2019 focuses are harder to divine.<\/p>\n

A foundation set up in Jim\u2019s name, now headed by Charlie, gave $12 million in grants from 2016 through 2020, filings show. The gifts were spread among dozens of small causes, many of them — like the Montessori School of Lake Forest — hyperlocal to their home in Chicago\u2019s affluent North Shore suburbs.<\/p>\n

Along with institutions like the University of Pennsylvania and Cornell University, one regular recipient is Jupiter, Florida-based Furry Friends, a pet shelter to which the Mills Foundation donated $225,000 over several years. Jim did so out of loyalty to his childhood friend, Herb Baum, former CEO of Dial Corp., according to Furry Friends\u2019 President Pat Deshong.<\/p>\n

\u201cHe always sent large increments, he never asked for proof,\u201d she said. \u201cIf it was important enough for Herb, it was important enough for him.\u201d<\/p>\n