You’ve probably heard the term "Barbarians at the Gate." It’s the title of that famous book about the 1988 RJR Nabisco takeover, the one where greed, egos, and corporate jets collided in a spectacular mess of 80s excess. But there’s a specific character in that story—a firm called Forstmann Little & Co—that played the role of the self-appointed "good guy" in a room full of sharks. They were the ones who refused to use "junk bonds," calling them "wampum" and "funny money."
Honestly, the history of Forstmann Little & Co is a weird mix of massive financial wins, high-society drama, and a slow, painful sunset that most people have already forgotten.
Why Forstmann Little & Co Actually Mattered
Most private equity firms today are basically giant asset-gathering machines. They want more funds, more fees, and more scale. Forstmann Little & Co was different because it was personal. Founded in 1978 by brothers Ted and Nick Forstmann along with Brian Little, the firm operated with a "real money" philosophy. They didn't just want to flip companies; they wanted to fix them.
Ted Forstmann, the senior partner and the face of the firm, was a loud, charismatic critic of the way Wall Street was trending. He hated Henry Kravis and the team at KKR. He thought their reliance on high-yield junk bonds was a house of cards that would eventually wreck the American economy. While everyone else was getting drunk on cheap debt, Forstmann Little & Co was using their own subordinated debt fund—capital they raised from pension funds and wealthy individuals—to buy companies.
It worked. For a long time, it worked incredibly well.
Between their founding and the early 2000s, the firm's equity funds reportedly averaged returns of over 50% a year. You don't see those kinds of numbers anymore. They bought Gulfstream Aerospace, Dr Pepper, and General Instrument, turning them into gold mines.
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The Gulfstream Gamble
If you want to understand how Forstmann Little & Co operated when they were at the top of their game, you have to look at Gulfstream. In 1990, the private jet manufacturer was a mess. They bought it for about $850 million at the start of a recession. Most people thought they were crazy.
Ted Forstmann didn't just sit in a New York office looking at spreadsheets. He actually took over day-to-day management. He fired the people who weren't working out, hired GE veterans like Chris Davis to handle the finances, and poured money into R&D to create the Gulfstream V. By the time they sold it to General Dynamics in 1999 for $5.3 billion, they hadn't just made a profit; they had saved an American icon.
That was the Forstmann way. It was "gentlemanly" private equity, or at least that’s how they branded it.
When the "Smartest Man in the Room" Missed the Mark
Every legend has a "but," and for Forstmann Little & Co, it was the telecom bubble.
In the late 90s, the firm started to feel like the world was passing them by. The old-school industrial deals weren't the shiny objects anymore. Ted Forstmann later admitted he didn't really understand technology, yet he plowed billions into companies like XO Communications and McLeodUSA.
It was a disaster.
The firm lost roughly $1.5 billion. It wasn't just the money, though—it was the reputation. The State of Connecticut, which had invested heavily in the firm, actually sued them for "gross negligence." It was a landmark case. It was the first time a major pension fund really took a swing at a private equity giant for losing their shirt. While the firm eventually settled for a relatively small $15 million, the aura of invincibility was gone.
The Long Sunset
By 2004, Ted Forstmann was done raising new funds. He famously said the industry had gone in a direction he didn't like—too much focus on fees, too much "funny money." He spent his final years focusing on IMG, the sports and modeling agency, which he bought for $750 million.
When Ted died in 2011, the firm essentially died with him. There was no successor. There was no plan to keep the name alive. The assets were sold off—IMG went to William Morris Endeavor—and the doors were finally closed for good around 2014-2015.
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What You Can Learn From the Forstmann Legacy
Looking back from 2026, the story of Forstmann Little & Co is a cautionary tale about ego and "style drift." They were the best in the world at buying tangible businesses and making them better. When they tried to chase the "new thing" they didn't understand, they got burned.
If you're looking to apply the "Forstmann Method" to your own business or investments, here are the takeaways:
- Stick to your "Circle of Competence": Don't invest in things you can't explain to a ten-year-old. Forstmann was a genius at jets and soda; he was a novice at fiber optics.
- Real Value vs. Financial Engineering: Focus on the "EBITDA"—the actual earnings. Debt is a tool, not a strategy. If the only way a deal works is through massive leverage, it’s probably a bad deal.
- Operational Control Matters: If you buy something, be prepared to fix it yourself. The Gulfstream turnaround happened because of active leadership, not passive oversight.
Forstmann Little & Co didn't end with a bang or a massive IPO for the firm itself. It just faded away as the "Barbarians" they once fought against became the new establishment.
Final Practical Steps for Investors
To avoid the traps that eventually snared Forstmann, perform a "pre-mortem" on any major investment. Ask yourself: "If this fails in three years, why did it happen?" If the answer is "I didn't understand the underlying technology," walk away. Always maintain a clear exit strategy that doesn't rely on a "greater fool" to buy you out during a bubble.