Risks, Luck and Savvy Provide Big Payoff for Entrepreneur Thornton : Faith in a Firm That Nearly Foundered Was Rewarded With Sale of Stock for $37 Million
Entrepreneur John Thornton of San Diego has come a long way since his hardscrabble high school days in Long Beach when he made extra dollars buying and selling used bicycles and motor scooters.
Now, as a San Diego-based venture capitalist with ownership stakes in seven companies, Thornton makes much larger deals. Last month, for example, the 56-year-old Thornton sold his 13% interest in Micom Systems, a data communications company based in Simi Valley, for $37 million to a buy-out team led by Odyssey Partners.
Similar to many self-made men of his age, Thornton points to growing up during the Depression as the formative experience of his business life, to be being aware at a very early age that he and his family had little in material possessions and that he desperately wanted more.
Degree of Success
Thornton’s profits from his Micom investment are an indication that, to some degree, he has succeeded. There have been other big returns: he received $3.5 million in 1986 when Integrated Software Systems (ISSCO), a software company in which Thornton held a 5% stake, was sold to Computer Associates for nearly $70 million.
According to those who have known him over the years, Thornton’s successes are the results of an acumen and diligence that he has demonstrated throughout his life, from the entrepreneurial beginnings as the son of a Long Beach car salesman, to winning a scholarship to Pomona College where he was elected student body president, to gaining a commission in the U. S. Navy, to getting an MBA at the Harvard Business School.
Thornton is best known locally for having been chief executive at Wavetek of San Diego for 20 years. Joining the test and measurement instrument manufacturer as president at age 33 in 1965, Thornton helped nurture the company from $400,000 in sales to more than $80 million by the time he resigned in 1985.
25% Annual Growth
Wavetek rode the tremendous growth wave in the test and measurement instrumentation business, fueled mainly by the National Aeronautics and Space Administration’s demand for high quality electronics for the space program, Thornton said. During his first 15 years at the Wavetek helm, the company’s revenues typically grew at a 25% annual rate, placing enormous demands on the young executive’s managerial skills.
But Thornton’s tenure as chief executive was not an unalloyed success. He resigned at a time when the company was experiencing financial difficulty because of a general downturn in the test and measurement business and to some misguided acquisitions and product development programs.
According to fellow Wavetek board member Garrett Fitzgibbons, Thornton left the company at the urging of the Wavetek board that sought a change in top management.
Thornton insists his departure was voluntary and prompted by the pressing demands of his other investments.
Thornton stayed on as Wavetek chairman until he resigned in June of this year. Although Thornton remains a Wavetek board member, Fitzgibbons said Thornton has told other board members that he would like to sell the 700,000 Wavetek shares that he and his wife, Sally, own. Those shares amount to an 8% stake in the company.
Thornton said he has never sold a share of his Wavetek stock but declined to comment on his discussions with the board regarding his stock.
Wavetek’s largest shareholder, the Shufro, Rose & Ehrman investment firm in New York, said in May that it planned to sell its 20% stake in Wavetek.
‘Control Person’
Thornton makes it clear that he feels much of his business career lies ahead of him. He owns pieces of six companies, besides his Wavetek stock. Of the six, he is chairman of three and largest shareholder in all. An acknowledged “control person,” he takes an active management role in each of the six companies.
His investments include:
A 55% stake in Mitek Systems, a publicly held San Diego-based manufacturer of printers and facsimile machines fitted with so-called Tempest technology to make them immune to electronic snooping. Mitek sales for fiscal 1987 totaled $7.7 million, mainly to government customers. After significant losses and several months on the brink of bankruptcy, Mitek is now poised for a turnaround, Thornton said.
A 26% stake in Software Products International, a closely held, San Diego-based publisher of integrated software packages sold mostly in Europe. The company will post a profit on 1988 sales that are expected to reach about $15 million, up from $12.5 million last year, Thornton said.
A 25% stake in Dynamic Instruments of San Diego, a closely held maker of spectrum and vibration analysis and electronic weighing equipment. Sales this year may increase this year by 50% over last year’s total of $8 million, Thornton said. The company plans to go public soon “to feed the growth,” he said.
A 22% stake in Hanzon, a closely held, Seattle-based manufacturer of controllers for laser printers. The company’s sales this fiscal year will be about $4.5 million and should be at least twice that the following year.
A “more than 20%” interest in Medical Materials, a Westlake Village maker of foot braces. Sales for 1988 should be “on the order of $1 million.”
A “significant stock position” that Thornton declined to quantify in the 20-acre Culbertson Winery in Rancho California. Thornton described Culbertson as a high-quality U. S. supplier of sparkling wine. Cases shipped should reach 25,000 in 1989, up from a projected total of 14,000 this year.
If the distinguishing characteristics of Thornton’s business career are a healthy appetite for risk and good luck, his experience with Micom demonstrates both. In 1976, he put up virtually all his personal assets as security to guarantee a $125,000 loan to the small San Fernando Valley company. Thornton made the loan after Wavetek’s board declined to acquire Micom, then a research and development house specializing in digital communications.
Thornton’s loan, which was later converted to a controlling interest in Micom’s stock, saved Micom from going bankrupt. Three years later, Micom had become the world’s largest manufacturer of statistical multiplexers, devices that concentrate digital signals to the point that several computers can send data over the same telephone line.
The $125,000 loan in 1976 would became a stock position worth $37 million at last month’s buyout of Micom by Odyssey. Micom’s sales this year should total about $240 million, founder William A. Norred said in an interview.
“I think John’s belief in people and his willingness to support them when necessary and to stand aside when necessary was a significant factor in the success of the company,” Norred said.
Thornton has taken an even greater risk with Mitek Systems of San Diego. Over the last two years, Thornton has fronted $5 million in both equity capital and loans to Mitek, cash that has kept the struggling Sorrento Valley company afloat.
The company was on the verge of profitability in June when the Department of Defense announced a moratorium on purchases of office and data-processing equipment, robbing Mitek of the source for 40% of its sales. The DOD moratorium was finally lifted Sept. 30, and Mitek shipments of snoop-resistant laser printers and FAX machines have resumed.
Thornton’s belief in Mitek’s technology and in its management team led by president Philip Thomas are what led him to keep throwing cash at Mitek long after most other lenders or investors would have thought the company a lost cause.
Although Mitek continues to lose money, and its future is still uncertain, Thornton said the company “has turned the corner.”
Thornton attributes much of his business success to Sally, his wife of 33 years. Of his wife’s counsel, Thornton said: “She’s great at cutting through the fog and getting to the heart of the matter.”
Sally Thornton runs the Thorntons’ philanthropic activities, which have included financial support of the San Diego Zoo and San Diego cultural institutions.
The John M. and Sally B. Thornton Foundation made a $1-million donation to the San Diego Museum of Art’s endowment fund in 1986.
