A history of Kevin O’Leary’s spotty business record, in four deals

The newest contender for the Conservative Party of Canada leadership is running on his business experience. Here’s how four of his companies fared

 

After months of speculation, Kevin O’Leary has finally entered the race to lead the Conservative Party of Canada. It’s a crowded field, with 14 leadership hopefuls in all. O’Leary has the benefit of a well-known name, owing to his tenure on Dragons’ Den and Shark Tank.

But without any political experience, he’ll no doubt be relying on his credentials as a businessman and entrepreneur to stand out and assert his authority on economic and fiscal matters. O’Leary has repeatedly attacked the Liberal government for backtracking on its election promise to balance the budget by 2019-20, for example. “Justin Trudeau lied to me too. And I’m going to make him pay for that,” O’Leary said in his Facebook announcement. “You can’t fool me with numbers. I can read a balance sheet. I can read an income statement. And what I’m going to do for the next two years is shine the light of transparency on everything he does.”

So how exactly does O’Leary’s business career hold up? Here’s brief tour of his notable ventures:


The Learning Company

In 1983, O’Leary started SoftKey Software Products in the basement of his Toronto home, recognizing the potential of the nascent personal computer industry. He was a driven salesperson, convincing other companies to bundle SoftKey’s products with their own and later licensing software from other firms, which proved more cost-effective than internal development. O’Leary also had an appetite for acquisitions, and snapped up many other software firms. By 1995, the company had taken the name of one of its acquisitions, The Learning Company (TLC), and relocated to Boston. By then, it was focused on educational software for kids. In 1998, toy company Mattel made a US$3.8 billion offer for TLC.

The purchase was disastrous for Mattel. In the third quarter of 1999, management projected a $50-million profit for its TLC division. Instead, management revised forecasts to project a loss of between $50 million and $100 million, sending Mattel’s stock crashing and wiping out billions in shareholder value. O’Leary was pushed out of the company six months after the deal closed.

Mattel brought in a software executive named Bernard Stolar to turnaround TLC after O’Leary left, as recounted in Canadian Business in 2010:

“It was in horrible condition,” Stolar recalls. TLC had too many employees, too much overhead and aging brands. Stolar believes its acquisition spree was solely to add revenue. “They didn’t even care if they were losing money or not,” he says.

TLC had been losing money leading up to the Mattel acquisition, a fact that eluded O’Leary in that same 2010 article:

While TLC grossed US$839 million in 1998, it lost $105 million. It recorded losses the two previous years as well. Some analysts questioned why Mattel would pay billions for a money-losing company. “Well, that’s not true,” O’Leary says, eyes narrowing. “The company was profitable when we sold to Mattel. Who said it wasn’t profitable?” I read him the earnings taken from the company’s annual reports, and he asks to see my notes. “You know, I gotta check. This doesn’t look right to me,” he says. After another moment of scrutiny, he tosses the notes back on the table. “Those were public numbers, so whatever they were, they were,” he concludes. “But I don’t think Mattel was worried about that. They were looking at the growth in market share and what our top line was.”

Shareholders filed a class action lawsuit against Mattel, alleging TLC used accounting tricks to hide losses and inflate quarterly revenue. The defendants, including O’Leary, denied the claims. Mattel settled in 2003 for $122-million.


StorageNow Holdings

In 2003, O’Leary invested in a self-storage startup along with entrepreneur Reza Satchu. The concept had been developed by a friend of Satchu’s, Jonathan Wheler. StorageNow was outpaced by its competitors, however, particularly InStorage Self Storage REIT. According to Report on Business magazine:

In 2006, StorageNow had 10 facilities and InStorage had two. One year later, InStorage had almost 30 and StorageNow still had 10. “We kind of blew past them in terms of growth,” says InStorage’s former CEO, Jim Tadeson. When InStorage offered to buy StorageNow in 2007, O’Leary and Satchu accepted … O’Leary argues that both firms were growing rapidly and they couldn’t survive separately because the market wasn’t big enough. InStorage bought StorageNow for $110 million.

O’Leary reportedly made $4.5-million on the deal, but not before getting ensnared in a lawsuit. Wheler filed a $10-million wrongful dismissal suit against Satchu and O’Leary in 2005, alleging they pushed him out upon realizing how profitable the company could be. O’Leary told Report on Business that Wheler simply wasn’t hitting his performance targets. The suit was eventually settled, and Wheler went on to found another storage firm. In 2012, his stake was worth $10-million.


O’Leary Funds Management

As his television presence grew, O’Leary set up a money management firm with former Wall Street banker Connor O’Brien in 2008. O’Leary’s role was primarily about marketing (he didn’t have a licence to manage money), and his name recognition helped bring in clients. The vision was his, however, and he wanted to offer products to retirees and Baby Boomers in search of yield after the federal government’s crackdown on income trusts. Further, his co-hosting duties on The Lang and O’Leary Exchange gave him access to CEOs, politicians and fund managers, helping to generate broad investment ideas, he told Canadian Business.

The notion that some of the world’s top financial minds are spilling secrets to O’Leary in the dressing room is one that has garnered skepticism, notably from Mark McQueen, who operates venture debt company Wellington Financial in Toronto. He is a prolific blogger, and O’Leary is one of his favourite targets. “Kevin O’Leary is a fantastic television personality,” he says. “I’m not sure what that has to do with picking stocks.” McQueen created a mock portfolio on his blog of 15 dividend-paying stocks to compete with the first fund, [O’Leary Global Equity Income Fund], when it launched. As of early April, McQueen’s basket of stocks was up 16.7%. OGE units were down 11.4%.

In 2012, Report on Business raised further questions about the performance of O’Leary’s funds, particularly his vow to never touch the investor’s principal. According to Dan Hallett, vice-president of HighView Financial Group:

[I]f one examines O’Leary’s Global Equity Income Fund (OGE) and its successor mutual fund from 2008 to the present, original investors will have seen their investments decline in value. “One-quarter of OGE’s distributions have been return of capital,” says Hallett. O’Leary Funds says the real figure is 17%. Hallett’s 2009 analysis also showed that most of O’Leary’s funds would have a hard time sustaining their distribution rates from returns in the portfolios alone. “[O’Leary’s] stated investment philosophy was at odds with what they are doing,” says Hallett. “My basic conclusion was there was a lot more marketing than real investment steak.” When asked whether he would invest with O’Leary Funds today, Hallett said, “There are no funds they have that really jump out at me.”

O’Leary said that year the company had more than $1.5 billion under management. By 2015, the figure had dropped to $800-million. (In this, the company is not alone; many fund managers have been hurting in recent years.) Canoe Financial, a company chaired by fellow Dragons’ Den alum Brett Wilson and possessing roughly $3 billion under management at the time, announced a deal to acquire the investment assets of O’Leary Funds in October 2015.

O’Leary hasn’t left the investment business entirely. He and O’Brien now operate O’Shares Investments, which provides a small suite of ETFs.


O’Leary Mortgages

Buoyed by the popularity of his investment products, O’Leary set out to make a mark in Canada’s mortgage industry. In 2012, he announced a plan to launch a mortgage brokerage that would differentiate itself in three ways. First, the company would give borrowers a comprehensive written plan to help them determine the most effective way to repay their mortgages. Second, O’Leary planned to simplify the paperwork associated with the process. And finally, he would offer a straightforward five-year fixed mortgage with a competitive rate. “Come to O’Leary Mortgage,” he says in a pitch on YouTube. “We’re ready. Let us know when you are.”

In 2014, O’Leary Mortgages abruptly shut down. “After a careful trial and evaluation period, we have decided to exit the mortgage space,” according to a company statement. “We will be focusing instead on other financial services businesses that we see as more compelling.”

It’s unclear why the decision was made, or how much business O’Leary Mortgages ended up pulling in. CanadianMortgageTrends.com speculated that O’Leary hadn’t done enough to differentiate the company:

If anything, it’s a fascinating case study on how you can’t scale in this business without an unambiguous competitive edge. And that takes more than a famous name.

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