Jim D’Aquila is best known around the Twin Cities as a seasoned investment banker, a profession he’s enjoyed since first cutting his teeth at Drexel Burnham in the 1980s. Those closest to him, however, know he’s also a photography fanatic. When he’s not working or with his family, he spends all hours of the day and night shooting, primarily in black and white. “My wife kiddingly says it’s my mistress,” says the managing director of investment banking at Imperial Capital. “It’s fun.”
His two passions intersected in spring 2013 as he was searching for an interesting company to present to his firm at an annual gathering in May. He had been watching how Minnetonka-based Polaroid was continuing to license new, innovative products. As he looked into it, he unearthed not only a surprising turnaround of an iconic international brand, but a story of a company that could become even greater than it once was by focusing solely on the power of a brand.
“I had watched from afar and noticed that some of their products moved off the shelf quickly, in particular the analog camera that printed out a classic-style Polaroid photo in the size of a business card,” D’Aquila says. “Target said they were having a hard time keeping the camera and film in stock; there was a buzz about the ‘rebirth of Polaroid.’ ”
He contacted Polaroid CEO Scott Hardy to talk about speaking at his firm’s event. The conversation convinced him Hardy was a perfect match: “We try to have 25 private companies speak, companies we consider to have unique stories that may be misunderstood by Wall Street but are consumer-facing,” D’Aquila says. “That’s what Scott had been doing at Polaroid, turning it from an asset-intensive business to a licensing business that is starting to capture the cool again that Polaroid used to have.”
Polaroid went through two bankruptcies between 2001 and 2009, six CEOs between 2005 and 2009, and a complete reversal of its business strategy beginning in 2008. Instead of making things, as it had most of its 77-year history, Polaroid now only licenses its name to others, who make and sell what Polaroid first concludes will be innovative and attractive to consumers. The choices Hardy’s team has made in selecting those products is paying off, as consumers in 100 countries are beginning to see Polaroid as the chic brand of decades ago.
The company also is churning out high profit margins. “Polaroid doesn’t have a lot of costs today,” D’Aquila says. “No manufacturing, warehouses, inventory management, receivables, payables—the things that have buried so many companies, including Polaroid previously. It’s just collecting license fees and paying payroll.”
All new Polaroid cameras that print photos use an inkless paper that was first developed at Polaroid. Tom Petters invested $10 million to help perfect the technology and spun it off as a new company called Zink Imaging Inc. in 2005. His Petters Group Worldwide chief operating officer and Polaroid’s CEO back then, Mary Jeffries, became CEO of Zink in 2011.
The company is still embroiled in Petters-related bankruptcy proceedings, as trustee Doug Kelley says the $10 million Petters provided to Zink must be paid back. Zink has been unable to repay what the court is requesting, and with interest, now owes the bankruptcy estate $16.5 million.
Kelley originally allowed Zink to issue a promissory note to repay the funds over time. That note was extended three times and ultimately matured in December 2013, according to bankruptcy records. Kelley then entered into forbearance agreements to give Zink more time. But as of late January, Zink was in default and ceased operations, terminating all employees and letting its insurance go on its assets. Kelley received permission from the court to spend up to $500,000 from the bankruptcy estate to protect Zink’s property and assets, and spent about $200,000 of those funds through late February.
Jeffries initially denied Zink was shut down. When provided with a copy of court records saying it was, she confirmed the company had closed but said it was only for a few days. She would not provide more information about the company’s financial stability or viability.
Polaroid is not concerned at this time, as Zink produced a stockpile of paper before operations were mothballed. And those close to the company are optimistic that Jeffries will soon solidify the financing to continue operations and deal with what’s owed to the bankruptcy estate.
And, D’Aquila learned, it was looking for new longer-term investors. In 2009, an investor group bought the company for $88 million out of a bankruptcy proceeding forced upon it a year earlier, when owner Tom Petters was arrested for a $3.65 billion Ponzi scheme. As D’Aquila described to Hardy the longer-term concept of family capital, he mentioned the Pohlad family by way of example. Hardy “asked whether I thought Jim Pohlad would be interested in hearing about Polaroid,” D’Aquila says. Within a week, D’Aquila, Jim Pohlad and the chief investment officer (CIO) of Pohlad’s Marquette Capital, Jan Ozzello Wilcox, were meeting with Hardy.
That meeting turned into more than a year of negotiations with Polaroid investors and culminated in a deal in late 2014: Marquette’s Pohlad Family Capital Fund (PFCF) and an unnamed private investor paid $52 million and assumed $18 million in liabilities to acquire 70 percent of Polaroid. PFCF directly owns 36 percent; its partnering private investor—a Pohlad family friend who prefers to remain anonymous—has asked Marquette to take the lead and run Polaroid on its behalf, according to CIO Jan Ozzello Wilcox.
Marquette also had to up the ante with John Stoebner, the Chapter 7 bankruptcy trustee of the former Polaroid Corp., who did well for his creditors as a result. While Marquette and its partner agreed to pay the bankruptcy estate $7 million from the overall $70 million investment, this amount will be paid over a 30-month period with accrued interest at 10 percent and “loan management fees” of $25,000 per month. Combined with a $400,000 “origination fee,” the bankruptcy estate stands to be paid a total of nearly $10 million.
The Pohlad family owns the Minnesota Twins and had a half-century history in the conventional banking business in Minnesota until it exited it in late 2014. Its Marquette Capital has typically invested $2 million to $10 million in manufacturers of consumer or industrial products, distributors, business-to-business service companies and retail businesses. And it typically looks for a return within seven years. So why Polaroid?
“Polaroid is an iconic brand worldwide comparable to Nike, Coca-Cola and other well-known brands. After it came out from bankruptcy it needed to find its footing in the last 18 months and did, and it’s becoming cool again,” says Ozzello Wilcox. “I was at [the Consumer Electronics Show] last year with the company and its booth was swarming with people. Of 600 booths, it was voted the second-best booth.”
The Polaroid brand today can be found on a broad range of consumer electronics, from mobile phones, tablets and flat-screen TVs to digital and analog cameras in more than10,000 retail stores. When the company first began licensing in the early 2000s, it was accused of choosing poor-quality partners. With a change in focus, today’s choices appear to be hitting the mark. Its cellphone ranks among the most popular in France, while its TVs rank among the most popular in the U.K.
Then there’s its business model. As D’Aquila mentioned, Polaroid today has a much higher profit margin than when it was an R&D-intensive manufacturing company. And it now has the potential—and financial backing—to become a brand management company, instead of a company managing just one brand.
The company does not release its financials other than to say that annual revenue from all Polaroid-branded products sold worldwide is around $600 million. Its financial model, however, is similar to that of Iconix Brand Group Inc., a 150-employee publicly traded brand management company that owns, markets and licenses a portfolio of 36 brands across fashion, sports, home, and entertainment including Candie’s, London Fog, Ocean Pacific, Joe Boxer, Mossimo and Cannon.
Licensors of consumer products typically receive 1 percent to 11 percent of revenue when a product is sold to consumers, according to a December 2014 Roth Capital Partners investment research report on Iconix. The licensors then pay from 20 percent to 80 percent of those dollars to the licensor. Based on this and other industry information, TCB estimates Polaroid’s net revenues at more than $20 million a year, and earnings before income tax, depreciation and amortization at about $15 million. The company declined comment on these estimates.
While Polaroid makes for an attractive investment as is, Marquette views it as a platform that can acquire, and similarly re-energize other brands.
“Once you have the legal, licensing, factories and licensees in place with a contiguous type of product, you don’t need to add people to push products through your distributor. So any other brand we purchase would be additive,” says Ozzello Wilcox. It allows Polaroid to play to its strengths: “Polaroid is good at identifying trends, products, features and usability, but others are better at designing and making things.”
By the end of 2015, it’s quite probable Hardy and his team will be working on reinvigorating another brand just as they have done with Polaroid. Officials refused to say anything more specific. Kodak comes to mind as a possibility, however, given its similarities.
Rising from turmoil
“We’re very excited about [Marquette’s investment], as it’s a testament to what we’ve been able to achieve with the Polaroid brand since it was acquired in 2009,” Hardy says. “We’ve taken something that had been tied up with the Tom Petters fiasco, kept it healthy and strong, and have grown it.” Indeed, he could write a book about what he’s gone through since joining Polaroid in the mid-2000s as an executive vice president.
Back then the company had just been acquired by Petters Group Worldwide (PGW), which meant “basically taking a legacy, well-established, long-standing manufacturing company based in Boston, merging it with a Minnesota group that was licensing with a focus on consumer electronics, and integrating two management teams while figuring out what the go-forward strategy should be,” Hardy says. Along the way, the decision was made to get out of manufacturing and focus on licensing the brand. “We knew going into 2008 that the Polaroid brand was the single greatest asset the company had. But it was difficult sitting around the table and figuring out, OK, so what do we do with that?”
Petters and Polaroid CEO Mary Jeffries were working in earnest to answer that question, according to internal company documents. The notion of leveraging just the Polaroid brand was so hot with other investors that Jeffries in mid-2008 was leading an effort to sell 49 percent of Polaroid for $1.4 billion, a valuation supported in part through a 2007 Duff & Phelps company evaluation.
But as authorities later concluded, much of the documentation created at PGW was based on false information as part of the Ponzi scheme and as such, it’s difficult to determine Polaroid’s true value before PGW was raided and shut down in September 2008. It was pre-global financial meltdown, pre-Petters arrest, and as always, based on the eye of whoever was considering paying what was being asked. Jeffries could not be reached for comment.
The arrest and subsequent conviction of Petters forced Polaroid into a 363 bankruptcy process to maximize its value for creditors and other victims of the Ponzi scheme. It also led to internal leadership turmoil, as new CEOs came and went. The company was soon thereafter sold for $88 million—nearly 75 percent lower than the value of just its brand two years earlier, when Duff & Phelps concluded it to be around $340 million.
“We hired an investment banker and had them market it,” says Petters bankruptcy estate trustee Doug Kelley. “There just wasn’t a market to support the price Tom paid for it, and licensing wasn’t there yet, either,” Kelley says. “I feel good about the price we got, as it was as good as we could do at the time. There were many employees and the burn rate to keep Polaroid open was quite high; we needed to move quickly.”
“I’ve been shooting photos since I was 8. I have a darkroom in my house, I’m never without a camera in my hand or in my pocket—a real camera, not a phone camera,” says Jim D’Aquila, the investment banker whose love of photography led to a $70 million acquisition of Polaroid. Most of his photos are professional-grade, but he also shoots for fun, such as with this photo of his 11-year-old daughter, Gabriella, above.
The next chapter
Such fast action kept Polaroid going and allowed for what Hardy refers to as a “forced transformation. I was hired as president, I hired key people as needed and we set out to grow the brand through a strategic licensing model.”
More important, Hardy brought consistency back to Polaroid’s ability to deliver products customers find to be fun, unique and easy to use. The company carefully chooses its licensees, and still oversees manufacturing and quality control. As a result, new Polaroid cameras are hybrids of current trends and future interests, mixed with the ability to print out a photo.
One of the most popular models is the Polaroid Socialmatic, which combines instant printing with instant uploading to social media. The camera prints 2-by-3-inch Zink-brand photos that come out smudge-proof, water-resistant and tear-resistant, and it pairs with nearby Wi-Fi or Bluetooth devices.
The smaller Polaroid Z2300 is like other digital cameras, allowing users to crop and add borders and filters. But it also can print the photo. Polaroid’s action sports camera, the Cube, is small, shockproof, mountable and capable of recording up to 90 minutes of 1080p HD video. The product is especially popular with mothers who like to clip it onto their car keys so they have a camera ready to go whenever they want to capture moments with their children.
D’Aquila and Ozzello Wilcox are also quick to add that Polaroid is far more than cameras now days, with strong sales, especially internationally, of Polaroid-branded televisions, tablets and mobile phones.
Polaroid also still owns, and vigorously defends, more than 1,200 trademark registrations around the world, where it is still referred to as a “famous brand” by trademark offices. “We’re very focused on continuing to grow the Polaroid brand,” Hardy says. “There are a lot of markets around the world, including Brazil, India, Russia and China, where there are strong consumer markets and growth opportunities for us,”
There’s much more to come, he says. And the investment from the Pohlad family will help the already profitable and growing Polaroid expand even faster.
1926 – Edwin H. Land leaves Harvard University after freshman year to pursue his own research on light polarization. Two years later, he files the patent for the first synthetic polarizer.
1939 – Polaroid produces glasses, ski goggles and dark-adapter goggles for the U.S. Army and Navy.
1943 – Land’s 3-year-old daughter asks why she can’t see the picture he has just taken of her. He conceives of the instant camera.
1947 – Land presents the first demonstration of the instant camera. A year later, the first Land camera sells for $89.95.
1956 – The millionth Polaroid camera rolls off the assembly line. Polaroid products are now in more than 45 countries.
1965 – The stylish and low-priced Polaroid Swinger camera is released.
1972 – Polaroid introduces the first fully automatic, motorized, folding camera with instant color prints. Within a year, the company is producing 5,000 a day.
1977 – The Polaroid OneStep Land camera debuts. This inexpensive, fixed-focus camera becomes the best-selling camera, instant or conventional, in the U.S.
1981 – Polaroid Sun 600 System cameras and Type 600 color film are released.
1990 – Digital technologies begin eating into conventional photography film sales.
1992 – The Polaroid Captiva camera and film system, an ultra-compact format designed for instant portraits, debuts.
1998 – Polaroid falls into deep debt after buying back shares, creating an employee stock ownership plan and issuing preferred stock to ward off a hostile takeover attempt led by Walt Disney’s nephew, Roy E. Disney.
2001 – Still saddled by debt and with sales dropping, Polaroid files for protection from creditors as its stock drops to 28 cents a share from $50 a share three years earlier.
2002 – Polaroid Holding Co. acquires all of former Polaroid’s assets for $255 million.
2005 – Petters Group Worldwide (PGW) buys Polaroid Holding Co. for $426 million.
2005 – A new technology that produces photos without chemicals or ink, which Polaroid spent millions of dollars to develop, is spun off as a stand-alone company called Zink Imaging.
2008 – Polaroid stops making film and cameras, and extends licensing arrangements for others to produce Polaroid products. Later that year, PGW is raided, owner Tom Petters is convicted of running a Ponzi scheme and Polaroid’s assets are frozen by the courts, forcing it into bankruptcy.
2009 – The bulk of Polaroid’s assets are sold to an investment group. The Polaroid bankruptcy estate, led by trustee John Stoebner, retains a partial ownership stake.
2011 – Polaroid launches the Z340 instant digital camera, a fully functioning digital camera and integrated printer that produces 3-by-4-inch prints using Zink paper.
2014 – The Polaroid Cube debuts as the newest and smallest Polaroid lifestyle action camera.
2014 – Marquette Capital, the Pohlad family investment firm, acquires majority interest in Polaroid, including remaining ownership held by bankruptcy court.
Dale Kurschner is editor in chief of Twin Cities Business.