I had intended to go to the office after the lunch with Spy's COO, but Armin cuts those plans short. "I would like you to come out to the estate for dinner." It was not phrased like a request.
We are driven back and discuss the Spy meeting on the way. Armin asks me for my view. It is a simple one this time.
"He has a political problem. They know they are going to have to write down. The question is how much. We can use this, I think. That is if you are confident he won't just go to another firm willing to actually pay him a stack of money to take it off his hands."
"No," Armin answered immediately. "He doesn't trust private equity people. This was a friend to a friend sort of thing. He's probably already represented to the CEO that he will take care of this problem and figured that I was the best one to solve it for him. Now he's in a corner. We'll lend him a hand, but it will cost him, of course. Your job is going to be to figure out what his closing costs are, and if we can make any money with this thing. A negative sale price isn't out of the realm of possibility here. What do you make of the fact that it was just him, the COO, and not the CFO or both of them at this meeting?"
"I didn't think of it. I thought you two were friends and that's why we were meeting with the COO. If there was another reason I suspect that maybe the CFO isn't perfectly in line with the decision? Or he is mouthy and prone to say too much, but that's not something you see in the CFO of a publicly held often." To this, Armin just nodded.
An odd thing about being driven around with Armin. Sometimes he can go an hour or more without saying anything. He doesn't take notes, or read or talk on the phone. He just... contemplates. What I wouldn't give to hear a snippet of his inner monologue (or perhaps it's a dialogue?)
I spent the rest of the drive back thinking to myself that the term "negative sale price" is somewhat comic. It means that the asset is such a pain in the ass that a private equity firm has to be compensated in cash at the close for taking possession of it. It is like finding an add in the classifieds reading: "1990 BMW 3 series. Runs fine. Needs oil. Will pay buyer $5,000 to take possession." Sounds silly, yes? Well, it makes sense for the seller when it would cost $6,000 to have it towed and scrapped and they just don't want the car anymore. When you have substantial severance and golden parachute clauses for employees, it quickly becomes easy to see why a disgruntled owner would want to pay someone to make short work of the firm. Of course, we almost never actually spend the cash given to us to take a property on cleaning it up, like we claim we will have to during negotiations. There are few certainties in life, but one of them is that a private equity firm already thinks it has found the "hidden value" once they make a bid. Project Spy had substantial hidden value even before we starting talking about negative sale prices.