For the first many weeks I didn't even meet two of the firm's partners. I was quietly ensconced at Armin's estate, or traveling with him to management meetings. Ah, management meetings. But I suppose that to understand what this means one has to understand the process of hunting down deals.
The structure of "the chase" for deals is in some ways convoluted. First you have to find the deals. There are a variety of methods. At our firm we had two associates calling all day, every day into the senior executives or the "corporate development" departments of large, publicly held firms.
The pitch was simple. We are a private equity firm. We are buying (or in "acquisition mode"). The associate had noticed an article in the (Wall Street Journal/Barron's/Economist/Investor's Business Daily/Bathroom Wall) discussing XYZ Corporation's strategy shift and if any of the divisions or units had become undesirable or "non-core" as a result we hoped they would let us know so we could relieve them of said units.
Of course, the hope was that our associate was so suave that the large corporate wouldn't even bother to call an investment banker when they had something smaller to sell. (Having associates who put out seems to be an advantage in this business). See, we hate investment bankers. Investment bankers sell their services by convincing a firm's owners that their firm is worth "X" and then, right or wrong, blocking even the hint of any deal that makes their wild ass guess of "X" look silly. It is like hiring a real estate agent who promises to sell your $900,000 house for $1,000,000 and then refuses to even inform you about the 6 buyers offering $925,000. Well, ok. That's not really fair. Really we dislike them because Investment bankers mean negotiations and auctions. Negotiations and auctions mean paying fair prices for what we buy. We hate paying fair prices for what we buy. We love free markets. Except auctions. Then we want illiquid markets.
In any event, the net effect of all this calling was a seemingly never-ending series of meetings with the CEOs, CFOs and COOs of large public companies. "Business development." This translated t: Lunch at the Yacht Club. Afternoon drinks at the social club. Dinner at the Estate. Morning meetings in Manhattan offices. Drinks after work on Friday at the Four Seasons. Weekends who knows where. Then, occasionally, a CEO would call you up, or more likely, he would tell the CFO to call you up. They had something they were thinking of getting rid of. Could we do it quickly and quietly?
If that doesn't work then our associates spent a lot of time calling investment bankers. Did they have anything of interest for sale to us? Any aerospace stuff? Fast moving goods? (I always thought aerospace and fast moving goods must overlap). Processed meats company? (I'm not kidding, we almost bought one).
Ok, I know I said we hate investment bankers. Well, sometimes we don't hate investment bankers. "Sometimes" is when they call us trying to avoid sounding desperate because the deal they had thought was all sewn up to sell a company they were trying to dump fell through at the last minute. Their auction broke. Maybe we had bid on it but come in second, or third. Or not at all. Suddenly we love investment bankers. Illiquid market again.
No deals yet this week? Ok, then there is a lot of talking back and forth with accountants, consultants and lawyers. Any deals that look like they might be a problem? Any large acquisitions that might be threatening to close a 500 person unit somewhere after the deal is inked when the surviving company looks to consolidate operations? Give us a call. Slip us a note. Whisper in our ears over drinks. Start your sentence with, "You didn't hear this from me but..." That's like one of those EF Hutton commercials back when. The entire table of private equity guys and gals just clams right up.
This is, of course, a popularity contest. It is about showing these various professionals a better time and connecting with them on a deeper level than the rest of the private equity professionals who were chasing them. I began, I thought, to suspect why Armin found me interesting. I sailed. I rode horses. I could hunt. I skied. I played tennis. I was a moderately talented faker when it came to golf. I came from a bit of a leisurely background. Perfect to connect, charm, seduce, whathaveyou, the CEx set. This is why you constantly see former heads of state, presidents of banks, star athletes, some of whom have no finance background at all, joining private equity firms. They know how to schmooze. They have contacts. Even with this realization, the mystery to me was still how Armin credited me with such potential in this area.
When you first "officially" hear about a deal you get a "teaser." A one page document describing in general terms, and without any names, the nature of the business and the most basic of financials. Well, that's not always true. Sometimes there was no teaser. You liked those deals. That meant that there was no one who had the time to actually write a teaser. That meant no banker. That meant no resources to the transaction. That meant "cheap." If you get a teaser, and if you are interested, you sign a confidentiality agreement and a more detailed document, sometimes running into the hundreds of pages, is forwarded to you. This is "the book." Of course, some small or last minute deals had no "book." Then you had a lot of guesswork to do and a lot of questions to ask.
From the book you are supposed to decide you are interested in bidding, forward a "letter of intent" outlining the fact that you are interested and schedule a management meeting (or several). This is where you (duh) meet the managers, ask questions about the business and start deciding if you want to buy this sagging firm or if it is just too much trouble and too expensive.
Now, I pretty much glazed over the "sign a confidentiality agreement" step as if it were simple, but this process itself can take weeks as one haggles over terms and conditions. Alternatively, sometimes neither party even reads the damn things before signing them. This last point prompted me to put in some cute language in the middle of one of our standard NDAs just to test the waters:
Section 2: Information.
“Information” shall mean all data (whether provided orally, in writing or on computer disk), reports, plans, interpretations, designs, software, drawings, models, forecasts and records containing or otherwise reflecting any information not generally known to the public. Information shall include, but not be limited to, any information supplied to either party prior to the proper execution of this Agreement and any additional information provided subsequent to the date of this Agreement; provided, however, that this term shall not include any portion of the Information which (A) is or becomes generally available to the public other than as a result of a disclosure by the Receiving Party or its representatives, (B) is a part of the Originating Party's ever growing collection of printed, online or multimedia pornography and/or other erotic materials, (C) becomes available to the Receiving Party on a non-confidential basis from a source other than the Originating Party or its representatives which has been represented to the Receiving Party (and which the Receiving Party has no reason to disbelieve after due inquiry) that it is entitled to disclose it or (D) was known to the Receiving Party on a non-confidential basis prior to the disclosure thereof to the Receiving Party by the Originating Party or its representatives.
A dangerous game, I know, but I managed to get signatures on that 4 page document from 5 parties, including one CFO at a household name type public company, before one of our associates, instead of printing off a new copy from the Microsoft Word template on our server, and in a fit of apathy that nearly cost him his job, made a Xerox of an executed copy of my version, whited out the names of the original parties wrote in new ones and faxed it out to a firm fairly famous for being nitpicky with such documents. That was the end of my little "joke," though to this day no one knows where the "new" version came from.
We never got a deal from that firm again.