You won't find diplomas from Harvard or Wharton on his office walls.
In fact, the unlikely founder of American Capital Strategies Ltd., the largest private-equity firm in the Standard & Poor's 500 stock index, is a college dropout who has lived on a commune and dabbled in hammock making and shrimp farming.
But since its initial public offering in 1997, Malon Wilkus' Bethesda, Md.-based firm has acquired or helped finance 470 middle-market companies. It manages $21 billion in assets, up from $155 million at the time of its IPO, and has delivered average compounded annual returns of 18% to shareholders, including an average dividend yield of almost 10%.
And despite a negative return of 22% in 2007 — a result of a decline "with the rest of the financial stocks" — Mr. Wilkus is predicting a rebound in 2008. Mr. Wilkus believes the deteriorating economy and credit crunch are providing opportunity for his company's business. His prediction appears to be playing out.
While not yet in positive territory, American Capital has posted returns of -0.5%, better than the S&P 500's -5.3% return.
How did he do it? Largely by blazing his own path.
Born Edward Frank Wilkus 56 years ago in Coffeyville, Kan., population 10,000, he changed his name to Malon (pronounced like the Italian city of Milan) when he was 18, because he "liked the sound of it."
After two years at the University of Illinois, where he studied computer science and sociology, Mr. Wilkus dropped out in 1972.
Then, with $125 in his pocket "and a very nice camera," he set off for Latin America, selling the camera to get across the border from Mexico to Belize. After running out of money in Costa Rica, he took on a series of odd jobs, including selling the Encyclopaedia Britannica door-to-door, in Spanish.
"Since I didn't know Spanish, it was a tough job — a very tough job," Mr. Wilkus laughed.
Later, working as a busboy at a French restaurant, he came up with a unique way to fish for shrimp, and convinced the restaurant owner to invest in his idea. The shrimp business flopped, but Mr. Wilkus discovered he enjoyed raising money to fund his ideas.
Returning to the United States and college in 1974, he joined the East Wind commune in Missouri.
"I think my parents were distressed by that," Mr. Wilkus said ruefully. He spent the next nine years at the commune, where he made hammocks, sandals and nut butters that were sold to food co-ops and Pier 1 Inc. of Fort Worth, Texas.
"I learned most of what I know about business today from that experience," Mr. Wilkus said, explaining that he grew to understand the motivation of customers and investors.
In 1983, he left the commune for a job in marketing at the Calvert Group, an asset management firm in Bethesda, where he learned how to gather assets.
Three years later, Mr. Wilkus launched American Capital from the living room of his two-bedroom condo, which he shared with his wife, Susan, and their three children. He got a $75,000 loan from people he had known from his commune days and maxed out his credit cards for an additional $75,000.
"It was a very, very difficult business to start," Mr. Wilkus said.
Initially, American Capital focused on helping workers at small- and medium-sized companies acquire their employers by using employee stock ownership plans.
In 1997, he took American Capital public as a business development company, offering debt financing or taking equity stakes in buyout situations. Today the company boasts 700 employees with offices in 13 cities around the world.
"We built a private-equity firm that the average American can invest in," Mr. Wilkus said. "We've democratized private equity."
American Capital investors can take part in buyout deals simply by purchasing shares, which recently traded at $31.87 a pop.
As a business development company, American Capital avoids paying federal taxes if it distributes at least 90% of its income as dividends. For this reason, the company's dividend has always been high, which attracts shareholders.
For years, Wall Street naysayers accused the company of not earning enough to cover the lofty dividend and suggested it needed the capital markets to fund the distribution.
"For the last 10 years, in every single year, we have covered 100% of our dividend with ordinary taxable income and even paid out excess amounts in bonus dividends," Mr. Wilkus countered.
To offer "one-stop buyouts" that don't require extra time or additional financing to close, the company raises cash several times a year through secondary offerings. It has completed 31 such offerings since its IPO, six of them in 2007. Since last June, it has raised $4 billion, even in a down market.
"The fact that they can still go out and raise equity is a sign" of the market's confidence in the company, said Troy Ward, a senior analyst with
Stifel Nicolaus & Co. of St. Louis.
Over the years, American Capital has invested in a broad range of companies, including Gibson Guitar Corp., Bumble Bee Foods LLC, AAMCO Transmissions Inc., Riddell Sports Group Inc., and Piper Aircraft Inc. It offers an array of financing, including senior and mezzanine debt, and equity investments. This diversification helps to insulate American Capital, Mr. Wilkus contends.
The biggest risk facing the company is the health of the economy, which could affect the operations of companies that American Capital has acquired or helped with debt financing, Mr. Troy said.
In the first quarter, American Capital posted a loss of $813 million, most of which the company attributed to an accounting change related to Fair Value Financial Accounting Standard 157.
Because Mr. Wilkus believes "the economy will get worse before it gets better," his company is scrutinizing potential deals more closely.
Currently, he is avoiding restaurants, automakers and cyclical companies, but sees opportunities in energy, medical products, selected financial institutions and some distressed companies. He also is warming up to housing-related companies, believing that housing will bottom next year.
There are even more opportunities abroad.
"There's a very robust M&A market in Europe, and we think there are great opportunities there," Mr. Wilkus said.
E-mail Janet Morrissey at [email protected].
