Saving IT

A month after Steven Bronson took control at Qualstar Corp., he is bringing serious change to the struggling Simi Valley company in an effort to put it on a path to profitability and growth. It’s an established pattern for the 47-year old Bronson, an investment banker-slash-corporate executive who said his management style reflects his personality – transparent, pragmatic and realistic. While not embracing the term “turnaround artist,” Bronson can point to other examples of taking poorly performing companies and breathing some life into them. Case in point: Interlink Electronics Inc. in Camarillo, a manufacturer of touch sensor technology used in consumer electronics. Prior to Bronson becoming majority shareholder and chief executive in 2010, shares in the company traded at less than a $1 a share on the over-the-counter market. Now, the share price is $11. An investment banker by training, Bronson, a Westlake Village resident with a wife and three children, learned about running a company from his involvement in raising capital and participating in mergers and acquisitions. Reading financial statements and understanding contracts became valuable skills used at financial firms that translated into the manufacturing sector. “I can say that my investment banking experience has shaped a lot of areas that help me on the operational side,” said Bronson, who also serves as chief executive of asset management firm BKF Capital Group Inc. in Boca Raton, Fla. Now Bronson is taking those operational skills to Qualstar, a developer and manufacturer of data tape storage products. (Qualstar is No. 30 on the Business Journal’s list of largest local manufacturers and Interlink is No. 38. See pages 12 and 13.) Proxy battle For more than a year, Bronson waged a proxy battle to gain control of Qualstar, where he is the second largest shareholder. It was the most prominent takeover bid of a business in Ventura County in some years. In June, Bronson and his slate of candidates were elected to the board of directors. He was immediately named as interim chief executive. For some long-time employees at Qualstar and its subsidiary, N2Power, which makes power supply products for the telecommunications industry, the difference Bronson brings is noticeable from his predecessors Larry Firestone, who had been chief executive for a year, and before that William Gervais, a co-founder of the company. Bronson’s approach is more conservative; more measured versus the ambitious plans of Firestone, said Bill Lurie, the vice president of engineering. “The previous leadership was swinging for the fences while Steve is just looking to get on base,” Lurie said. Bronson said he brings clear and realistic goals to Qualstar because to do otherwise and fail is not good for morale. “In an organization everyone must feel like they are making progress,” Bronson added. To bring progress to Qualstar may seem like a tall order. Since the end of 2009, the company has reported net losses except for two quarters. Bronson believes he is the right person to turn around Qualstar because he likes a challenge and becomes passionate about what he gets involved with. “He has the right combination of being hands-on but not micro-managing, and having near-term objectives with long-term strategic goals,” said Howard Goldberg, chief operating officer at Interlink. A willingness to listen to employees is another trait Bronson brings and is appreciated by the likes of Randy Johnson, the vice president of sales at N2Power. Under prior management, the power supply products subsidiary was treated as the stepchild, with little to no investment. Suggestions to grow the company through licensing its technology, doing private label work or acquiring other power supply manufacturers were pushed aside, Johnson said. Bronson, however, has embraced those ideas and is moving ahead with implementing them. “He is already starting this just three weeks into the business,” Johnson said. ‘Wired differently’ Bronson grew up in New York City, the youngest of three children. His father was a teacher in New York public schools for more than 30 years. He comes from an educated family but he never graduated from college. He attended several semesters at Queens College but left at age 18 when he got his first Wall Street job with the now defunct investment firm of Drexel Burnham Lambert. Bronson doesn’t regret dropping out and eventually even his parents came around to his decision. “They realized I was wired differently from my brother and sister and would not have to worry about me,” Bronson said. From the back office at Drexel Burnham, he moved to the retail side of securities and then into trading and eventually investment banking. Working on the trading side exposed Bronson to undervalued small cap companies – just the types of companies he would later invest in and eventually control. In 1996, Bronson was doing advisory work for Mikron Infrared Inc., a New Jersey manufacturer, when he and other investors bought out a co-founder of the company. Bronson briefly served as president and put in place a management team that realigned and grew the company, which was sold in 2007. That experience gave Bronson his first taste in corporate management. He later became president of Ridgefield Acquisition Corp. and 4net Software Inc., publicly traded shell companies that have no operations or revenue and share space at the same Florida address as BKF Capital. Bronson said he is seeking growing private companies he can merge into those shells. BKF Capital at one time managed assets of $13 billion and traded on the New York Stock Exchange. A proxy battle by activist shareholders in 2006 decimated the company, causing the firm’s founder to leave and take much of the assets with him. Delisting from the NYSE put the company on the over-the-counter market. Bronson took control of BKF Capital in 2009 by purchasing shares at a discount. He put new directors in place and named himself president and chief executive. “We are now pursuing our strategy of getting back into the asset management business,” Bronson said. “We plan to launch a fund to invest in public small cap companies. Secret sauce If Bronson admits to any weakness, it’s that he takes on too much. He is up early and often works well into the evening taking calls from Asia. His outside reading is not novels but books and reports on business. But Bronson said he has key people at his businesses who handle the day-to-day operations, leaving him to handle strategic matters. At BKF Capital it is Maria Fregosi, chief operating officer. At Interlink it is Goldberg; Declan Flannery, managing director of the force-sensing resistor business unit; and Jeff Baker, chief technology officer. Bronson’s secret sauce is taking companies with good technology but not well run and mixing in business acumen, Goldberg said. “Qualstar is in that position,” Goldberg said. “I am confident he will get that on a growth path as he did with Interlink.” Founded in 1984, Qualstar makes data tape storage products for archival and backup uses by medium and large corporations. In 2002, the company acquired N2Power, the maker of converters used to power devices and products in the telecommunications, industrial and broadcast markets. Bronson and BKF Capital made their first investment in Qualstar in late 2010 and picked up additional shares in the months that followed, eventually gaining a 17 percent stake. Bronson began a lengthy proxy in February 2012 with criticism about the underperforming stock and direction of the company. Bronson’s next called for a special meeting in June 2012 to elect a new board of directors. That attempt fell short of obtaining the 6.1 million votes needed to remove the incumbent board. After losing the special election, Bronson laid low until early this year when he offered to buy 3 million shares of Qualstar stock for $5.1 million. The Qualstar board responded with a poison pill provision to create a second, preferred class of stock and flood the market with additional shares, diluting individual stakes such as Bronson’s. Bronson withdrew his offer and instead put up a slate of directors at the Qualstar annual meeting in June. This time, he received the necessary number of votes. This “no surrender” approach was less a Bronson character trait than it was seeing no other option to bring the change he wanted to see at Qualstar. “You can say ‘tenacious.’ I don’t think I had a choice,” Bronson said. Matching skills After being named interim chief executive, he took immediate steps to cut costs starting with lopping off an office in Denver. It will result in about $1 million in savings annually. It’s not his intention to clean house. Bronson will rely on long-time employees such as Lurie and Johnson to know the ins and outs of the company and to make sure that people are in positions that match their skills. “One of the things he has committed himself to is before making huge decisions he wants to get the employees’ (opinions),” Johnson said. Bronson said he would stay on as interim chief executive at least through the end of the year. He took the position because the board believed Bronson could hit the ground running. Among Bronson’s planned changes is working with outside partners to come up with new products. That way the company isn’t saddled with big research and development costs. Interlink made a similar move this spring by joining the corporate affiliate program at the University of California Santa Barbara. That gives the company access to the school’s equipment and brainpower to come up with ideas. The decisions he makes are informed by 30 years of business experience. There is no program, no courses to teach what he learned over those decades, Bronson said. The turnaround of Qualstar will be result of a personal, hands-on approach, he added. “My biggest gripe with the previous management of Qualstar is that they portrayed themselves as turnaround experts when their experience was very light,” Bronson said.