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Hard Lessons in Big Money from TrusteeFinancier and Marshall Alumnus Cappello Shares Stories From the Capital WarsMarch 26, 2007 • by David Bloom
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Running an investment-and merchant-banking organization that has handled more than $50 billion in capital transactions over the past three decades qualifies USC Trustee and Marshall School of Business alumnus Alex Cappello as an expert in money.
And if there's one lesson he has watched his sometimes-overconfident clients learn the hard way, Cappello said, it's that you shouldn't expect the capital markets will always deliver the money you need, when you need it most.
Cappello, speaking March 21 at USC Marshall's Dean's Business Breakfast at the InterContinental Hotel in Century City, talked about some of the lessons he's learned since graduating with a USC business degree in 1977, three years after he started Cappello Capital Corp. with the encouragement of two of his business professors.
"Don't assume that money's always going to be there when you need it," Cappello said. "There are windows for equity, especially in public markets. When you can get equity, get it."
Clients such as restaurant chain Koo-Koo-Roo and toy retailer FAO Schwarz declined to raise money when it was easily available to them during flush periods. Those decisions, made against Cappello Capital advice, came back to haunt both firms when their fortunes turned sharply downward.
"Sometimes clients take your advice, sometimes they don't," Cappello said before about 100 people. "We're conservative."
Cappello warned that many companies haven't been as conservative in the market's recent up years, and their aggressiveness will cause problems soon.
"I think we'll see a lot of restructuring, a lot of companies on the rocks," Cappello said. "The sub-prime lending problems are just the tip of the iceberg. I've been saying this for three years now, and eventually I'll be right."
More challenging is the uncertainty in many companies' leadership about their direction and goals, said Cappello, whose firm frequently advises corporations in mergers and acquisitions.
"It starts with a strategy," Cappello said. "(Greif Center for Entrepreneurial Studies Director) Tom O'Malia beat that into us. It's amazing how many boards don't know whether they want to eat or be eaten. They don't know where they sit in the food chain."
Part of Cappello's conservatism comes from some difficult lessons that he learned along the way, such as the time he and a partner allowed a client to persuade them to invest $42 million in a geothermal energy company.
"We've never done it before and we'll never do it again, as we lost all of the money in the energy crunch of the late 1980s," Cappello said.
But Cappello, despite his conservative approach to investing, has been investing actively in developing markets such as Latin America and Eastern Europe.
"We're all over the developing world," he said. "That's where the action is."
About the USC Marshall School of Business
Consistently ranked among the nation's premier schools, USC Marshall is internationally recognized for its emphasis on entrepreneurship and innovation, social responsibility and path-breaking research. Located in the heart of Los Angeles, one of the world's leading business centers and the U.S. gateway to the Pacific Rim, Marshall offers its 5,700-plus undergraduate and graduate students a unique world view and impressive global experiential opportunities. With an alumni community spanning 90 countries, USC Marshall students join a worldwide community of thought leaders who are redefining the way business works.