A top Wall Street exec explains the important investing lesson she learned from watching a $1 billion deal go wrong

CarlyleCarlyle’s Sandra Horbach.

Everyone makes mistakes — but as the adage goes, it’s often what you learn from them that counts.

Business Insider recently sat down with Sandra Horbach, the cohead of US buyouts at the $US158 billion private equity firm, Carlyle Group.

Horbach is one of the industry’s most senior women, and has been described as a trailblazer. She got her start in the fledgling industry in the 1980s, just out of business school.

Horbach’s industry typically involves buying up companies, often with borrowed money, and changing the companies to increase their value at a future point of sale.

Horbach and I had a wide-ranging conversation in which she described her biggest investment mistake, and what she learned.

The investment in question was a 2006 decision to buy Oriental Trading for $US1 billion.

From the interview (emphasis added):

Horbach: We invested in a company called Oriental Trading, which was a very successful business that had grown for 30 years consecutively. It was a catalogue and direct marketer of party supplies, celebratory products, and servicing schools, teachers, and families. We were very excited about the investment, and we partnered with a former owner of the company to continue to grow and build the business.

The investment was performing very well for the first couple of years. The company performed really well out of the box, but two years into the investment we hit the great recession, and, simultaneously, the US postal office increased postage rates for catalogues by 20%. So we had a massive increase in costs to the business at a time where we were entering a very negative economic environment. So we were unsuccessful in returning capital to our investors. We went through a restructuring. Today Warren Buffett owns the company. It’s still a nice business, but it couldn’t support the debt load we had put in place at the time of the acquisition, given both events were happening simultaneously.

Levy: Those two factors seem a bit unpredictable. One the crisis, two the post office.

Horbach: You’re right. They were incredibly unpredictable. But that’s the lesson of the investment. You can’t assume that a company, just because it’s been very successful for 30 years, that it still can’t be subject to tremendous shocks to the system. In those cases, you try to maintain the flexibility to weather through those storms. But in some cases, in our business, that’s not possible. But it does humble you.

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