Robert L. Johnson is always in search of the next big deal. In the past 18 months, the 61-year-old mogul has acquired more than 100 Marriott and Hilton hotel properties for more than $1 billion; formed a private equity fund with The Carlyle Group, one of the world’s largest private equity firms; and gone into the hedge fund business with Deutsche Bank. He’s also opened a bank, Urban Trust, that will have branches in select Wal-Mart stores. And he’s completed a deal with independent producers Harvey and Bob Weinstein to develop Our Stories Films, a movie studio that will produce black-themed, family-friendly comedies. To run these ventures he has hired A-list management talent away from some of the nation’s leading financial, real estate, and entertainment firms, including Rufus Rivers, a former managing director at Carlyle; Derek Saleeby, an investment banker who worked for Citibank and Smith Barney and was recently listed among BE ‘s Most Powerful Blacks on Wall Street; and Tracey Edmonds, the acclaimed producer who appeared on BE ‘s list of Top 50 Hollywood Power Brokers.
It’s mid-April, and Johnson has finished yet another marathon week, which included wrapping up the less-than-stellar 33-49 season for his NBA franchise, the Charlotte Bobcats. The billionaire entrepreneur arrived at his elegant corporate headquarters in Bethesda, Maryland, for what has amounted to a pit stop. In less than 48 hours, he’ll be traveling to Liberia to receive the Humane Order of African Redemption, the nation’s highest civilian honor, for his contributions to economic development. Once again, he’s being rewarded for his dealmaking prowess, fulfilling a commitment he’d made at the 2006 Clinton Global Initiative Forum to raise $30 million to invest with Liberian entrepreneurs.
It’s been seven years since he sold his first venture, Black Entertainment Television–the company he took public in 1990 and then private again in 1998–to media giant Viacom for $3 billion, which made him the wealthiest black man on the planet. In 2005 he left the network, but not to retire. Over the past few years he’s used his brand identity to cut deals–lots of them–and in the process, he’s reinvented himself as a mainstream business titan, a model for the next generation of black entrepreneurs to replicate on this 35th anniversary of the BE 100S.
Johnson has achieved what most black business leaders have been unable to: He’s gained invitations to the inner sanctums of global wealth and power; developed partnerships with the world’s financial leviathans; scored deals that have made black business history–although he quickly denies that his transactions merit a call to glory–and created legions of black millionaires who have served as managers or investors in his ventures.
Today, he expects that the businesses that make up his holding company, RLJ Companies, will have a greater influence on American society than he could have ever imagined BET having. Under the RLJ umbrella he owns two BE 100S companies: RLJ Development L.L.C. (No. 8 on the BE INDUSTRIAL/SERVICE 100 list with $460 million in sales), which, among other properties, owns and develops Marriott and Hilton hotels properties; and Bobcats Sports and Entertainment (No. 41 on the BE INDUSTRIAL/SERVICE 100 list with $102 million in sales), owner of Charlotte, North Carolina’s NBA franchise and its arena operations.
The other enterprises, spread across a series of operating divisions that include a banking group, a financial services division, a restaurant unit, and an entertainment division, may appear on BE INDUSTRIAL/SERVICE and FINANCIAL SERVICES rankings in the future. Johnson’s role is one of a catalyst, for moving black enterprises “into the mainstream, where the companies owned by African Americans serve the broad population with no deference whatsoever to the minority ownership as a factor in the economics of the business.” In this exclusive interview, he spoke to BE’s Executive Editor Derek T. Dingle about what it will take to get there.
Define this stage of your business life. What’s your vision for the company?
I have always been a deal maker who believes that you can create a brand identity that helps you generate more deal opportunities. So when I left as the active owner and operator of BET, I had two choices: I could go fish, play golf, and just relax, or I could do what I like to do–generate value by putting together strategic deals with the right kind of people and bringing the right talent to operate the businesses. So when I call this my second act, it is simply doing in another business sector what I did in the cable industry. In cable, I found a strategic partner in [Tele-Communications Inc.] Chairman John Malone and at some point Time Warner. I have found strategic partners in just about every business I’ve got: I’ve got The Carlyle Group for my private equity fund; I’m partners with the hotel giants Marriott and Hilton; I’m partners with Deutsche Bank in our hedge fund; I’ve got Michael Jordan as my partner for my basketball team. What I do well is identify strategic partners who want to share the vision I have and want to participate in the opportunity created by that vision. So RLJ Companies is a brand defined as a well-capitalized, well-managed African American company that seeks strategic opportunities in certain business sectors.
It seems that you’ve solved some challenges to growth that most black entrepreneurs face, such as developing a sound infrastructure and, of course, raising capital.
To be fair, I made a lot of money with BET, so I had the advantage of having access to my own capital. But capital is still an issue. I think the bigger challenge for BE companies is, how do they define their companies? If they define their companies as family businesses to be passed down the line, then you run them to maintain control. And when you want to maintain control of a company, because it is sort of a family asset, you don’t run it for value creation. One, you can’t give up too much of it because you will lose control. Two, a family-run business may have to take care of the needs of certain family members since it’s being run on their behalf–they may have to take money out
How have you attracted blue-chip partners and managed those relationships?
Blue-chip partners come to people who have established themselves as a brand that has a certain meaning to it. So the people who do business with me say, “Bob Johnson is a successful African American businessman. He knows how to create value and he’s had relationships with white companies that we know and respect.” Unfortunately for many African American entrepreneurs, most blue-chip companies only know one and a-half black people. So, four factors drive people to make deals with me. One, if I go into business with Bob Johnson, everybody is going to look at me and say that’s a pretty smart deal, so I’m going to get validated. Two, the second thing they are going to say is, this guy is coming into the deal with his own money, so he’s bringing the same kind of value equation that I am. So I’m not necessarily doing something out of the goodness of my heart–this is a business deal. Three, he has proved that he can attract talented people that create economic returns. Four, he is a minority, for which we can get political, social, and moral benefit.
Are you positioning RLJ to go public?
I think RLJ could be a publicly traded company. And as you know, I am not afraid of operating a publicly traded company. It is sort of a natural exit strategy. Another exit strategy is being acquired by a major financial firm. It’s sort of what happened with BET and Viacom. I am not running a family busi
ness to pass down to my 17-year-old son. I’m running this business for maximization of value.
After BET, you acquired hotels, created financial partnerships, and bought a basketball franchise. What attracts you to certain industries?
A lot of what I do is driven by my belief that I know the people in the industry well enough that they would want to share in my vision. In other words, I feel I can find the right strategic partner. So, part of my reason for getting into the hotel business was I’ve been on the board of directors of Hilton Hotels for 12 years. The CEO, who I knew and liked and respected, came to me and said, “Bob, you ever thought about owning hotels?” I said, “No, I never thought about it.” He said, “Well look, we’ve got six hotels for sale that we’re going to bundle up. We’ll put them in a package for you, and you can buy them.”
What are some other fac
tors in approaching deals?We’re looking at business sectors that I think do three things: generate very significant cash flow, benefit from our taking them over and making them a minority-owned company, and they have to be a business we know something about.
One arena you sought was the airline industry. Why did DC Air fail to get off the ground?
DC Air was a prime example of what I call being in the deal flow and being a minority. [The airlines] United and US Airways wanted to merge. They had regulatory problems at Reagan National and wanted someone to take those slots and try to solve those problems. Who better than the first African American owner of a major airline? I can’t remember the last time I saw the Congressional Black Caucus vote to endorse a merger. All 40 members of the caucus, at that time, signed a letter endorsing the merger because they recognized the historic and political nature of an African American owning a major airline. So that’s how that came about. But the reason it failed was not because of the deal. It failed because United and US Air didn’t move fast enough, and then when the Bush administration came in, the attorney general killed the deal.
With a powerhouse partner like The Carlyle Group, why does your private equity firm have problems getting business from pension funds?
You’ve got to understand that the pension fund world is controlled by consultants. Almost all consultants are white companies with white employees. And then the pension fund people are risk-averse, as they should be. But they cater to the notion that if we have never given you any money, you are de facto unacceptable. Now, if you take that argument to its ultimate conclusion, you’ll never get any money. So the idea is you’re an emerging manager. We’ll give you a little bit of money until you show that you can manage it. Now, they’ll do that but they don’t necessarily want to, and they probably wouldn’t do it unless there was some mandate. With a significant amount of money coming from black and Hispanic government workers, state and county workers, and teachers, the entire pension industry deserves to be looked at by the political leadership of this country, black and white.
So how do you crack that barrier?
I have strong political relations. I know that I can perform. I know I’ve got talented people. So the pension funds can’t say no to me without some really good reason. And if it ain’t a good reason, I’m going to call the political leadership and say, “Explain to me why, when I’ve got a track record over here in hotels, when my partner is The Carlyle Group, one of the largest private equity funds in the world, when I’ve got a guy who worked at Carlyle, who ran millions of dollars, now because he’s working for Bob Johnson, he’s no longer acceptable.”
What lessons have you learned from your failures?
I don’t have any large failures. I think there are ones that got away. I think I could have invested in radio a long time ago. I lost some money in the record business. Starting out, I was not willing to take on debt because I was concerned about whether or not the growth or earnings of the business would grow fast enough to meet the debt obligations. I think I probably could have leveraged BET in some ways to acquire some really good businesses that I didn’t because I didn’t want to take on the debt.
So you got bolder as you got older.
I got richer as I got older. I realized that there are two things about being in business. Until you’re really comfortable that the business is going to be around until things start to happen, you still kind of reflect back on being poor. Being poor doesn’t ever leave you. I don’t care how rich I might get, there’s a side of me that always thinks poor. So that will cause you to be cautious. But at some point after you know you’ve got all the comforts that you can imagine–you’re taking care of your family, you’re taking care maybe down to two generations–then you can start to take on a little more risk. And taking on debt of the right kind is not a risk. Debt is a very good way to grow a business, if you know how to manage the debt.
You’ve invested in Three Keys Music and RolloverSystems, which were started by young black entrepreneurs, and then made them your partners. Is it part of your grand plan to grow a new generation of entrepreneurs that will embrace your institutional model?
A friend of mine stated jokingly–maybe not jokingly–that if black people owned all the businesses in the world, there would be no need for antitrust laws because we’d never merge or come together. The saddest thing in the 35 years of the BE 100S is that there has not been to date, that I can think of, a significant black merger of any kind that brought two and two together to make five. I’ve attempted a couple of them and not been successful. I tried to merge Radio One with BET. To me that’s a problem. I’m going to find and acquire businesses where I can see a strategic fit and get to a scale where everybody benefits, everybody goes to the beach.
What advice do you give to young entrepreneurs?
Look for a growing sector. Healthcare, information technology represent big growth sectors. Second, try to align yourself with a strategic partner–somebody who can bring something to the deal that you don’t. It could be capital. It could be talent. It could be infrastructure. Don’t worry about the 100% ownership. If you generate value, nobody is going to take you off the field. Third, do not miss the chance to leverage whatever assets you have, in addition to your ability and skill. Leverage your political clout. Leverage your demand that companies address opportunities for minorities in that sector. Don’t be afraid that you’re going to be blackballed. If you’re good, you won’t be blackballed.
What would you like your legacy to be?
Rev. Sharpton does his thing. Jesse [Jackson] does his thing. Creative artists do their thing. I do deals.