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Wednesday, July 05, 2006

Terrorists? No, Federal Prosecutors.

but they carry badges "My god!  No!  They killed him!  They killed him!  They did, the bastards killed him."
- Sobbing female first class passenger in the row in front of me just before takeoff on New York bound flight this morning on learning via blackberry of the death of Ken Lay.  She then consumed five vodkas on the rocks during the 90some minute flight.

"What is it?  Terrorists?"
- My panicked seatmate on the same flight

"No, federal prosecutors."
- Equity Private

Tuesday, July 11, 2006

The Power of Seven

a different kind of evil Occasionally, one is surprised to find, in the midst of the corporate jungle, individuals who have managed quietly, and without public fuss, to build a large and thriving corporate body.  One such is the 38 year old "Jake," who, more by luck than anything probably, managed to be in the right place and the right time for five years in a row and build a $800 million business from essentially nothing.  Unsurprisingly, Armin is somehow connected to Jake and got the first call when Jake tired of his business some months ago and decided he should buy a small airport in the islands, as it would be much more fun playing in his personal control tower (no, I am not joking) than firing admins who then sue him (probably rightfully) for sexual harassment (again, I am not joking).

As should also be unsurprising to Going Private readers familiar with such entrepreneurs, I would be substantially understating the matter to describe Jake as "eccentric."  Equally unsurprising should be the fact that he has also managed to attract a great deal of legal attention in the form of any number of lawsuits, generally involving one (but occasionally both) of two classes of plaintiff.  First, various minority partners which, despite the near certainty of litigation (or perhaps because of the near impossibility of Jake prevailing in any forum presided over by an elected official or a panel of his "peers"), he seems to have no difficulty attracting.  Second, former personal assistants (universally in their 20s, blond, formerly involved in competitive college sports and female).  In fact, so frequent are these actions that one, small and local legal office has developed a practice highly specialized in "Jakeigation" and lucratively represented 4 such plaintiffs in separate suits over the last 3 years.

According to legal counsel familiar with the matter, Jake has not only carefully salvaged defeat in every action he has become embroiled in, but he has failed to prevail, ever, on a single motion or counterclaim he has presented.  It was, at first, unclear to me if this perfect record is a function of Jake's total unsuitability as a witness for himself because of his eccentric (indeed borderline bizarre) behavior both on and off the stand (transcripts of his testimony read like the videotape "confessional" in a bad reality show wherein 7 totally incompatible 20somethings are thrown together in tight quarters and the producers sit back and record the fun) or his seemingly tenuous relationship with reality.  Then I met Jake and it all became as clear as sapphire crystal.

For reasons that should be obvious given my description, Jake and investment bankers simply do not get along.  And so it was that I was given care of Sub Rosa's new intern, "Craig," and dispatched to Greenwich to cater to the Howard Hughes understudy.

Jake has seven Blue Persian cats.  Actually, it might be more accurate to say that seven Blue Persian cats have Jake, their manservant and trustee.  They essentially have the run of the property (which is a not insubstantial plot in Greenwich) and are treated with a deference formerly reserved for tempestious dieties prone to anger quickly, raze villages and turn vast swaths of the population into pillars of salt if not lavished with constant supplicant mewings, offerings and, indeed, human sacrifice.  Indeed, many a servant running only casually afoul of one of the cats, found their lucrative tenure at the Estate du Jake to be a fickle fount.  I heard a rumor which, after reflection, has gained substantial credibility in my mind, namely that Jake's entire estate will pass in trust to his cats and the two children he fathered out of wedlock with one or another personal assistant will be left with next to nothing.

I should pause at this point to say that I am fairly neutral to positive when it comes to pets.  Frankly, any pet not able to sustain itself without direct human intervention for at least a month and unfortunate enough to be put in my care would surely expire given my work schedule.  Despite this, I mostly enjoy pets.  Or, I should say, I enjoy the freedom from responsibility afforded me by other people's pets.  I even have a mild affection, if you could call it that, for most cats.  Cats are generally unoffensive and benign.  They are usually low maintenance.  They are mostly self-sufficient.  I get along with cats.

I fucking despise Jake's cats.

Here's the thing.  One Blue Persian could, properly managed and seen but not heard, be a subtle statement of evil world domination intentions.  Two might hint at some instability beneath the evil genius layer.  Three... well.... But seven?  Loony bin.

Jake's Blue Persians look like a hairy ball of the dryer lint you remove from that filter thing (after 65 loads of blue jeans were dried) with a hairy pug face in the middle of which someone has stuck two big, yellow, (and beyond creepy) plastic teddy-bear eyes.  The problem is that this dryer lint ball walks, and talks.  I should say, talks incessantly.  The damn things never shut up.  I think they sleep vocally.  Often they form impromptu a capella groups, generally wherever Jake's guests have congregated, all struggling at the same time to be heard over the whinings of the others, volume progressively rising, pitch progressively raised, as they seek to drown out the others.  I can also attest with some confidence also that they are all completely tone deaf. This process is accelerated if they fail to attract the affection of guests.  And, of course, once even the slightest bit of affection is shown them, the other six flock to the issuer.  I know this because I carefully watched it happen to Craig, who, to my absolute horror, was foolish enough to intone "Here, kitty kitty kitty."  As you might imagine, this caused my opinion of our intern to slip rather dramatically.

It is a very good thing Jake can afford substantial hoards of household help to deploy an armored battalion of Oreck vacuum cleaners twice daily, or the sum of the living areas would be upholstered in "Blue Persian Wool."  Even as I write this, nearly a week on and a dry cleaning session later, I have recovered half a dozen cat hairs, which I suspect are actually viruses given their propensity to replication, from my suit.

We are invited to sit in the living room, a massively vertical space that, as there are no carpets or rugs for some reason, acts as an echo chamber, reflecting back down from the domed ceiling the voices of those below, delayed and slightly out of phase.  The effect is to double the number of cat voices audible at any moment.  To quote an Austrian Emperor: "The ear simply cannot follow so many notes."  I think at first that this effect must be intentional.  It would be trivial to dampen the sound in the room with some proper attention to fabric, after all.

Amazingly, Jake spoke in almost monotone, and without raised voice, though the entire session.  I grew so tired of straining to hear him that I finally just gave up.

I couldn't relate much of the meeting.  I spent most of it watching in horror as Craig collected five tuna smelling lint balls in his lap in the course of 20 minutes.

We walked out of the place with the beginnings of a deal framework but on the way to the waiting town-car Craig suddenly stopped and began to closely examine his laptop bag and then, to my amazement, to sniff it.

"FUCK!" he finally intoned.  "One of the fucking cats pissed on my new laptop bag."  The lack of rugs or carpeting fell suddenly and with an almost audible click into the grand order of things.

I made him sit in the front for the ride home.

Wednesday, July 26, 2006

Deal Hell

lawyer or banker? Equity Private Reader: "Where have you been?  Weeks without a post."
Answer: See Diagram

Art: Illustrations for Dante's Inferno, Gustave Doré (1861)

Thursday, July 27, 2006

Get Well

colin hall Please get well soon, Colin.  We miss you.

Narcotrafficking and Private Equity

no spray for pe partners yet A friend of Going Private spent a lot of time studying black markets at University of Chicago and Harvard.  Among other things he devoted a lot of energy to understanding the economies of illegal drugs.  He once characterized the recent trend of private equity firms teaming up to invest in much larger deals as akin to an operational move made by the larger cocaine cartels in the 1980s and 1990s.  Specifically, splitting up cocaine loads via outsourced transportation.  If a single plane went down containing a large shipment of cocaine that all belonged to a single smuggling group, that was economically painful.  If instead the plane contained cocaine belonging to 4 different groups, the loss of a single load was distributed among the groups.  Private equity funds teaming up on deals, he argued, was the same kind of diversification strategy.  Aside from the obvious pleasure I derive from reciting apt comparisons between private equity firms and narcotrafficking cartels, there is a particular health care angle here too.  It is for this reason that this passage from a recent LBO Wire article confuses me:

While the $33 billion LBO of hospital chain HCA Inc. is being done by a consortium, it nevertheless shows that general partners are moving to soothe the fears of limited partners by cutting back on club deals.

Why cut back on club deals?  Oh sure, the returns are potentially more limited, but being able to play in one of the larger LBOs around with a lower risk profile (a significant blow up in such a large deal could cripple a firm that hadn't protected itself) should be worth the more modest returns.  (And by "modest" please keep in mind that we are talking within the LBO sphere here and that, at least in my estimation, limited partners are going to have to start getting used to more modest returns).

LBO Wire points out that many private equity partnerships have restrictions on what portion of equity can be invested in any single deal (to encourage the same risk mitigating diversity that club deals take advantage of) and that since capital levels have risen dramatically they can now form smaller consortiums.

I'm mindful of the other issue LBO Wire brings up, that you just don't want eight private equity firms on the Board at the same time, but I am not particularly convinced that is as significant a problem as others suggest.  As long as roles are clearly defined early on the Board tangles should be minimal.  When I voiced this opinion to Armin, however, his reply was, "True.  And all I have to do to solve world hunger is just get food to everyone."  I would feel slighted but I am smugly satisfied in the knowledge that he still can't get the phrase "costs and arm and a leg" down right.  He's improved from "costs a foot and a hand," and one comic "costs a foot and a mouth" incident (hoof and mouth disease perhaps?) to "costs a leg and an arm," though.

LBO Wire goes on to quote John LeClaire of Goodwin Procter in this passage: "With an eight times purchase multiple and HCA's strong historic cash flow performance, the firms 'are not looking to sell down risk....'"

With everything else going on I think it says something that we consider an 8x multiple low enough to suggest limited risk, but then maybe I'm being grouchy.

Friday, July 28, 2006

Let's See Some ID

the debt bitch has more power Amid the chaos that was Newark Airport last night:
Random Passenger: "Are you standing in line to check in for flight 123?"
Debt Bitch, after a long pause: "Excuse me?"
Random Passenger: "Flight 123?  Are you checking in?"
Debt Bitch, after longer pause: "I'm sorry?"
Random Passenger, not yet realizing the gravity of his mistake: "I'm trying to find out if you are checking in for flight 123.  When did you get here?"

Debt Bitch, louder: "Who are you, exactly?"
Random Passenger: "I'm just trying to..."
Debt Bitch, now with the attention of the entire line: "Do you have some identification?  I'd like to see some ID please."
Random Passenger, stuttering but, amazingly, reaching for ID: "Well, I am just a passenger.  I- I've been trying to get on this flight since 6:00"
Debt Bitch with hand out: "Yeah, let's see the ID."
Random Passenger: "Look, all I want to know is..."
Debt Bitch, now examining the wallet she has been handed: "Well, Mr. (pause) Williams.  I think you ask too many questions."
Random Passenger: (stunned silence)
Debt Bitch, handing back the wallet: "Anything else?"
Random Passenger, slinking away: "No."

Punishing Talent for Fun and Profit VI

upward? Readers of Going Private will be familiar with my many critiques of the critics of executive pay.  Hardly a week passes without another bit of hand wringing over the W2 forms of public company CEOs.  These are usually accompanied by cute little graphics of fat cats with overflowing bags of money.  Any number of sound bites pointing to the rising inequity in CEO pay are cited by plastic "financial reporters."  Never mind what scholars on the subject say.  A loose connection to the facts seems a required line on the resume of executive pay critics.  So it doesn't surprise me that it is only the Economist that has managed to pick up on the rather compelling view on the subject of no less a luminary than Steven Kaplan, the University of Chicago professor and economist.

Kaplan points out via the Economist (subscription required) and his published study that effectively the only way to show chief-executive pay on the rise since 2000-2001, the years Kaplan believes it peaked, is to "combine forward-looking and backward-looking measures of pay in any year."  I won't insult the statistical acumen of Going Private's readers by outlining how great a farce such a method would be.

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