Going Private

Project Sinister

Being at the upper end of middle management (or the lower end of senior management?) in an buyout firm means you spend a lot of time dealing with portfolio companies.  In theory I don't mind that.  In fact, I always thought it would be a plus and add some variety to the job.  It was even part of my "early employment theory."  You know, the lofty aspirations you have for how cool your finance related job is actually going to be.  I did, after all, want to use my strategic and marketing casebooks.  Those are fixed assets.  They were expensive.  I need a positive Return on Assets figure for them.

"Sinister, LLC" is a portfolio company on the left coast.  Sinister has issues.  Armin would tell you that the problems started after a bad month in November.  Personally, I think the problem was that we bought the company.

Sinister was snapped up just before I joined the firm.  Good thing too because I would have put all my waking hours into sinking the acquisition.  It is not that the firm doesn't have potential.  It is not that there are a bunch of Stanford grads running it.  It is not that it isn't in an interesting industry (financial services, basically).  It is not that the firm's name starts with the wrong letter.  (You know, I've given it time and effort but I still can't get over what a yahoo Kawasaki is).  It is that the firm's management and sales team have zero concept of what it means to work for a living.

Part of the role of being a parent to the firm is nurturing and helping the firm along.  Of course, we don't do this because we are the Red Cross.  We do it because that big debt payment needs to get serviced with regularity.  We do it because we paid for the damn thing and we want our money back.  Yesterday.

Building value in a daughter firm means that, at least if you want to be credible, you need to have some kind of operational expertise.  It has grown quite fashionable among LBOs to claim a high level of operational expertise.  It shows your limited partners that you can extract value out of a firm by doing more than just restructuring the balance sheet.  You can build revenue.  You can help the firm excel. Well, most firms.

Right after we bought Sinister we pushed them to put together an entirely new product line.  Armin thought it up and cracked the whip until something presentable was crafted.  I had mostly been able to avoid entanglement in Sinister's affairs until late last month when I was asked to help review some materials for the product line.  They were mostly ok. Perhaps a little techno-babble filled, but that was to be expected as the development team was composed of 6 Ph.D. holders and one graphic designer.  A little tailoring and it was a solid B+ presentation.

This month, through no small amount of effort and the leveraging of a series of personal contacts, Armin managed to secure for Sinister a Wednesday meeting with one of the members of the "Hedge 100" list, the top 100 hedge funds in the world ranked by size of assets under management.  It should go without saying that adoption by this firm of Sinister's product would, by itself, make the firm.  It should also go would out saying that this would, therefore, be the biggest and most important sales call Sinister's sales team would make. Should go without saying.

Armin, quite cleverly in my opinion, generally has visiting luminaries, be they from clients, limited partners, daughter firms or even competitors, stay at the estate if their visit is to be short, so when 3 of the Sinister team were put on the list to make the sales call in Manhattan their efforts to book rooms at the Peninsula ran into a hard stop (against a brick wall).  Instead, they have been booked at "Chateau Armin."

You would think this presented no problem.  Chateau Armin is, in fact, much nicer than the Peninsula.  Particularly, as it happens, with respect to scenery.  You would think.  You would think wrong.  In fact, the whining was so intense it prompted a detailed review of the last 18 months of expenses and, though he won't know it until Friday, one of the team has already lost his job on this account.

Two days ago, because I made the tactical error of agreeing to review the materials last month, I was asked to review the sales presentation and provide some direction.  Herein lay the abyss.

Yesterday, I arranged a conference call with two Ph.D. Vice Presidents and the sales guru assigned to the project.  Of course, the first thing I asked for on the call was the PowerPoint presentation.  It took me 20 minutes to finally extract from them that there was no PowerPoint presentation whatsoever.  None.  This is now two days before the meeting with the hedge fund.  Well, there was really no reason for us to be talking then, was there?  They should immediately put one together and we would reconvene in three hours.  I set up a conference line and went off to other things.

As is my habit, I called in 10 minutes before the appointed time and left the speakerphone on mute, listening to the hold music and trying to pretend it wasn't bad.  The meeting time came.  And went.  And so did 10 minutes.  Then 20.  I called into Sinister's offices and asked for each one of the scheduled participants.  Their morose voicemails greeted me with taunting malaise.  I had them paged.  That only returned 15 minutes of holding, 5 for each of the AWOL participants. Finally, tracking down the head of marketing, I managed to determine that all three of them had been out of the office for the last 90 minutes.

"Where in the world are they?"  I was so foolish to ask.

"Well, I expect given the hour that they are at lunch."

"For 90 minutes?"

"This isn't New York, you know."  Oh, that's quite clear, I think.

Cell phones rang the full 6 rings (telling me they weren't turned off, I was just being ignored) after which even more morose voicemail recordings were the only reward for my efforts.

By this time I was tempted to pass the issue up to Armin.  Mind you, I don't like to be a tattletale, but I, to some extent, was on the hook for this presentation and I knew the lengths Armin had gone to in securing this meeting.

When I finally got the three stooges on the phone again (don't worry, they had been at a "working lunch") I was told to take it easy.  They had matters in hand.

"How many slides is the presentation."

"Twelve."

"How long have you scheduled the meeting for."

-silence-

"You have given them a timeframe right?"

-silence-

"Ok, who is presenting?"

-silence-

"Is anyone presenting?"  I could feel the anger, swelling in me.

"Hey, Dave, why don't you do it?"

"Yeah, ok, cool.  I'll do it."

"Ok, are you bringing a projector?"  Personally, I think this is critical.  Why depend on someone else's machine which you have never used before at someone else's facility?  I can't tell you how many times I've been witness to the embarrassing desktop icons on some young presenter's laptop revealed to a laughing audience of twenty because the wrong button was pushed on the projector.

"Well, don't they have one?"

"I have no idea," I replied.  "Hasn't anyone called them?"

-silence-

"Ok, so have you talked to their IT department?  You do plan to do an online demonstration right?  You will need an internet connection, right?"

-silence-

"Guys, you are the sales team.  Who is it you think is going to do this for you?"

"Well, we thought that since it was your contact that all that stuff would be arranged," whined one of them.

"Yeah," chimed in the fat one, Dave.  "Will there be food?  And diet soda.  I can't drink non-diet soda."  Given his bulk, how he was even going to remain standing for 12 slides was beyond me.  Then it occurred to me that the real problem was the food.  Maybe he could remain standing all that time, but he was never going to make it 12 slides without eating.

I have this problem.  I think in Technicolor.  Even about bland things.  Blue skies when I make airline reservations.  I see the Google logo whenever I think of bubbles.  Suddenly, the vision of a fat, slobbering Dave, talking about statistical values with his mouth full while desperately trying to cram down his throat yet another one of the wet, squishy, yellowish muffins that always seem to haunt lunch plates at financial services firms struck me.  Crumbs on his chin.  Moving as he spoke.  One of them just about to fall off, hanging on for dear life to avoid the fate of his comrades, squished ignominiously into the $200 per yard carpeting in the executive conference room.

Oh my god.

I counted to ten in my head.  "Breathe," I thought.  "There's no need to vomit.  Really.  That mouth watering you are feeling is just a trick of the brain.  Breathe.  Breathe."

It pains me to even continue to relate the rest of the conversation. Suffice it to say I spent the better part of today doing their presentation for them.  That's the rub when you are the parent firm. You own them.  Even if they are a bunch of fuckups you have to carry them.  Much as you might want to, you can't fire the entire sales and marketing team.  As a result, they are almost rewarded for underperforming, particularly if you've already cut staff to the bone, because you parachute in at the last minute and pull the slack in when they trip (or are caught sleeping) on the job.  Why work?  Our wonderful parents will save the day!  Hey, does the Peninsula have in-room massages?

So here I was.  We were flying three sales boobs over just so I could do their entire presentation for them and they could blithely handle the subsequent Q&A session.  (I am due to go to Europe for a transaction today but know this is how it will turn out instead). Subsidizing mediocrity.  There is nothing closer to anti-matter to me. It is the bane of my existence.  It is time I should spend on the next deal wasted on the pits of the last one.  I know that will sound arrogant to the non-industry readers.  You industry people know exactly what I mean though.

Don't you?

Invisible Executives

No one knows where the Sinister, LLC people are.  Apparently, they left early in the morning from the left coast to get to the Estate, but no one has their itinerary.  There's a rumor that flights are delayed because of an outage in New York's ATC radar, but no one knows what flights they took.  No one knows how they expect to get to the Estate from the airport.  No one knows if they even know where the Estate is.  No one has seen the presentation they are due to give.  No one knows if they took a projector.  Efforts to get someone else at Sinister to see if a projector was missing resulted in the answer: "Three projectors are missing."  Now there is a witch-hunt for projector thieves raging in the Sinister hallways.  To find the missing projectors, the head of IT for Sinister has been calling every employee into his office one by one and pretending he's a main character in the TV Drama Law and Order.

Unconcerned with the projectors, Armin has instead devolved into calling everyone he can get to answer the phone to grill them about the location of the missing executives.  It is Armin's habit, in circumstances such as these, to vent to me and poll me repeatedly for my opinion.  My challenge, in this circumstance, is to totally avoid rendering an opinion.  It is all downside for me, this rendering an opinion business.

If I echo his present disdain, it is just as likely as not that he will reverse his position and seem apologetic on the subject for a solid week.  (It won't stop him from just as apologetically firing someone's ass, but it makes me feel like a callous old heel).  If I counter it, then the firing he does anyhow becomes the physical manifestation of my error.  Not to mention that if I render a strong enough opinion I actually have the quite dangerous potential to spur drastic action on Armin's part.  I think two executives were the unwitting collateral damage related to my learning curve on how much power I had, inadvertently, been wielding. Of course, I could also be roped into "solving" the problem, if I gave any sign that I agree there is one.  No, it is better that I try to remain neutral.

"This is very rude, you know," he starts, standing at the doorway of the library, which is one of my sometime-unofficial workplaces at the Estate.  Uh oh.  I keep my nose buried in a stack of financials.  I resist the temptation to murmur.  It is hard to make a murmur neutral sounding.  (Try it.  No really.  No one's watching.  Try to murmur without conveying a value judgment.  Anything that sounds neutral gets mistaken for agreement with the speaker, I think you will notice).  So, I sit silently.  Trying not to even turn a page for fear it will keep his attention.

"They are guests in my home and I have no idea when or in what number to expect them," he delivers this as if he is talking about a flock of sheep, or the Wehrmacht or something.

"There are three of them."  Fuck.  I couldn’t help it.  I should have kept my mouth shut.  He sucked me right in.  Armin - 1.  EP - 0.

"What?  How do you know this?  You spoke with them?"

"Well, yes.  Yesterday.  I..."

"Do you have their schedules?  Why didn't you tell me?"

"I do not have their schedules."

"Then how do you know there are three of them," he demands, suspicious that I am hiding critical information from him.  I can hardly blame him.  He was a CEO of a Fortune 500 company in the 1980s.  I bet all his subordinates feared to give him bad news.  And since you couldn't really determine in advance what the CEO would think was bad news, it was safer to just keep your mouth shut.  Sort of like I am right now. I would be ashamed if I wasn't prone to be really vocal with respect to pending deals, negotiations and valuations.  It is just these petty daughter firms, particularly the ones that predated me, that just don't hold my interest.  It is not that I do not want them to do well, it is just that I don't have any real emotional stake in them.  I'm such a snob.

"Well, there were three of them on the conference call."

"So does that mean there are three of them coming?"

"No," I admit.  "I guess not."  For a minute I think I've escaped.  There's a long silence.

"This is outrageous."  That's it.  Now I know someone is losing their job.  "You do not behave like this.  It's entirely unprofessional." He's moved off of "angry" and into "resolved."  Someone's head is already on the floor.  The body is still twitching around.  Blood everwhere. Whoever it is, they don't even know they are dead yet.  At this very moment they are probably happily sipping wine in a leather covered business class seat trying to determine if the flight attendant will sleep with them and if so how they can swing meeting her later after the pesky meeting they have to attend in the morning.  "I want you to speak with them.  I want you to find out what the hell they think they are doing.  And then, I want you to call me."

Fuck.

2 + 2 = 5

IT Guy: "Hello?"
Equity Private: "Hi, IT Guy, it's Equity Private from [your parent company]."
IT Guy: (Guarded) "Oh, hello."
Equity Private: "I heard you are missing some projectors?"
IT Guy: "Uh, yeah."
Equity Private: "I've been asked to figure out what happened."
IT Guy: (To background) "Hey, Mike?"
Mike: (From background) "Yeah?"
IT Guy: "How many projectors are missing?"
Mike: "Uh.  Four."
IT Guy: "We are missing five projectors."
Equity Private: "He just said four."
IT Guy: "He means five."

Haemoglobin

It is true that I only grudgingly accept assignments involving the care and feeding of daughter firms, particularly when I had no part in the acquisition, but be this as it may I do take the assignments I am given quite seriously.  It is in this way that I discover the location of the Sinister team.

Quite a clever bit of detective work on my part, if I don't say so myself.  I happen to know that one of the Sinister sales team members, let's call him "Tom," is almost certainly sleeping with another Sinister employee, let's call her "Linda."  Linda has no idea I know this so I figured calling Linda at Sinister's headquarters and insisting that there was a medical lab calling with something about "test results" was a good way to find out where Tom was.

"Hi, Linda, it's Equity Private from your benevolent parent company."

"Oh. -pause- Hi, Equity."  (Linda doesn't like me very much because I delivered the news that three people in her department were getting laid off right after we bought Sinister).

"Look, this guy from Hemotest Labs, California keeps calling here asking for Tom."

"Hemotest?"

"Yeah, some kind of medical test results or something?  Anyhow, I need to reach him and I know he is traveling in New York but no one has his itinerary."

There is a long pause.  Linda doesn't even think to ask why I am calling her about Tom or why the lab would be calling me, the panic has already set in on several levels:  1.  What is this medical test result thing about?  2. Whenever the parent company calls, it's trouble.  3. I wonder if Tom will be mad if I tell Equity where he is.  4.  Does Equity know I'm bumping uglies with Tom?  5.  Does Tom's wife know I'm bumping uglies with Tom?  6.  I wonder if Tom is sleeping around.  7. Wait a minute.  He's cheating on his wife with me... why would I think he's not cheating... that bastard... I'll...

"Linda?"

"Oh.  Sorry.  Uh, why don't you give me the number for Hemotest and I'll give Tom the message."

"Oh, Linda, I wouldn't have bothered you with that sort of thing.  The Hemostat guy insists that he has to talk to Tom personally.  He won't tell me anything at all.  Apparently, it's some kind of confidential test result or something.  Heee-moe-test.  What do you think they test for?  Anyhow, I really have to reach him.  These people keep calling here and the partners are starting to ask questions."

"Uh.  Well.  I think Tom is at the Peninsula Hotel."

Duh.  Should have figured that.

"Ok, I'll try that.  Thanks Linda!"

Tom isn't the only one.  All three of them are at the hotel.  Calling their rooms is a useless endeavor.  I am sick of the hotel's scratchy, and somewhat bitchy, generic voicemail message by the third time I hear it.  I commandeer Armin's driver and head into the city.

Maybe I'm the only one, but I have to think that it would be obvious to anyone that if a VP of your parent company has to come hunting for you because no one can find you the day before a critical presentation, you might have made a career limiting move.  Apparently, it wasn't obvious to the Sinister sales team.

I tell the driver to wait nearby, copy down his cell phone number and walk up to reception.  Of course, none of the team are in, or if they are they aren't particularly disposed to answer their phone.  Getting room numbers from the suspicious and savvy staff at the Peninsula's front desk is going to effectively be an impossibility.  (I remind myself that should I ever want to have a discrete affair with someone the Peninsula is a good bet to keep the matter quiet).  Instead, I leave notes ("Medical Emergency.  Call Equity Immediately: [cell phone number]") for each of the team members and after taking a quick peek in the almost totally empty Bar at Fives I camp out in the lobby.

I should have brought a book.

Detrimental Reliance

The Peninsula is a beautiful hotel.  It does, however, feel a bit cramped.  The lobby seating foyer feels more like a little alcove.  A couch and two chairs.  The chairs are terribly uncomfortable.  The couch is the only realistic seating option if you are going to be there for a while.  I was going to be there for a while.  Then there is the little girl, probably 5 years old, running around and up and down the stairs in the throws of what can only be a major sugar high.  I am sorely tempted to hurl one of the throw pillows on the couch at her.  Instead, I try to entertain myself by doing as much business on the phone as I can. 

I toy with the idea of getting up and buying a book to read, but I know that the moment I do the entire team will walk in.  I have no idea how long it took but they eventually walked in, bright as day, pleased as punch with themselves.

Tom, the VP of sales, is their unofficial ringleader.  I've only met him once before.  Dave and Hal, on the other hand, both know me.  I walk right up to them before they even have a chance to gauge my approach.

"Gentlemen."

They freeze.

Step back for a moment and consider the scene.  There is something highly backwards about private equity when it comes to hierarchy.  Here I am, not even 30 yet, and I have more clout than the CEO of their firm.  The perception, right or wrong, is that heads roll, divisions are diminished and products eliminated at the whims of young, MBA'd upstarts like me.  If we are prone to get big heads quickly in private equity, this is why.  Here is an "experienced" sales team, terrified by the likes of me.  Or, perhaps more accurately, the power of the entity standing behind me.  I, of course, play it up whenever I can.

"We have a serious problem and the Senior Partner has asked me to come down here and speak with you."  I always say "Senior Partner," with capital letters on it when I am on a "force projection" mission for the firm.

Tom managed to collect himself, barely.

"Equity.  What a surprise!  What are you doing down here?"

"I just told you that.  The Senior Partner has sent me here to collect you and put things back on track for the meeting tomorrow."  I love the phrase "put things back on track."  There is no opportunity to argue that things never got off track.  There is only the discussion about how to put them back on track.

"Well, I think we have that in hand already," Tom begins.  I cut him off.

"The Senior Partner does not share your optimism."  I am convinced that slightly modified Darth Vader quotes are a badly under leveraged asset. I have been using them, and I think with good effect.  "This is what we are going to do.  We are going to sit down, go over the schedule and the presentation tomorrow and then I am going to decide if we need someone else to manage this process in your stead. What we are not going to do is discuss why you three are checked in at the Peninsula, or the anger of the Senior Partner's wife, who has been slaving in the kitchen all day to prepare the dinner that any moment will be slowly getting cold on the large table in the Senior Partner's dining room on 3 plates placed carefully in front of three empty seats in which your respective asses should be sitting at this very moment."

Surprisingly, and to their credit, the three of them obediently took a seat in the cramped lobby alcove and began pitching me their presentation.

It sucked.

Two hours later, it sucked less, but it still sucked.  I despaired of the debacle that would be tomorrow's presentation.  Whatever, it wasn't going to be my problem anymore.

I called Armin and gave him the long summary.  He was very quiet for a very long time after I finished speaking.  After a ten second pause that seemed an eternity I broke the silence.

"Armin, they are going to need some adult supervision tomorrow.  Left to their own devices I shudder to think what might happen."

"Good idea.  Go with them and take charge of the presentation.  I am relying on you."  -click-

Fuck.

Never Hire a Latte Drinker

I was wrong about Sinister's sales team.  They aren't hopeless.  It is the Vice President of Sales, Tom.  He's hopeless.  The thing about some "techie" or "engineer" professionals is that there are so focused on their own fields that they are often socially maladjusted.  Social ineptitude is often, I am told, a sign of great genius.  Sinister's sales team seems to be a data point right on this regression line.

After being tasked with managing this entire sales call, as if I were a sales guru, I snagged the last hotel room at the Peninsula and hand-held the team through at least a passable presentation.  This was no easy task given the fact that I knew exactly nothing substantive about the product.  I learn quick, or at least that's what my resume says, so at the very least I could talk the talk by the next morning.

The day started off with a 20 minute panic as we waited in the hotel lobby for Tom.  I got tired of saying "Where the hell is he" after the third time and, instead, sat brooding and thinking to myself that I would rather be just about anyplace else at all.

20 minutes after our appointed departure time Tom waltzed in with a Starbucks Latte in his hand.  Not a care in the world.  "Hey guys."  I could have killed him.  Later, when I described the incident to another Sinister employee the reply was, "That guy moves like old people fuck, and if you put a latte in his hand, you have to half that speed."

We all piled into a taxi (I took the front seat) and lumbered through the city to our destination.  On the way I handed a massive bag of danish, bagels, banana bread and granola bars I had snagged from the local upscale coffee shop to the back seat.  I thought Dave's eyes were going to bug out.  He set upon the bag like a big cat on the Serengeti.  There was nothing left by the time we had traveled 2 miles.

As we got closer, I shot a cross look at Tom.  "I will do the talking today.  You need to just be a fly on the wall."  I turned around and gave him the back of my head before he could reply.  All the while, I imagined him making obscene gestures behind me and almost spilling his latte.

You know a hedge fund is bursting at the seams with money when the refrigerator that holds the soft drinks for the late working employees is a Sub Zero(tm) with digital temperature controls.  This hedge fund was clearly bursting at the seams with money because I found four such refrigerators in the short span of our visit.

The presentation was a bravado performance.  I had completely despaired of it being even mildly successful.  The presentation slides were weak.  I feared Dave would be eating the entire time.  I feared Tom would break in and offer to reduce the price of the product to half of our cost.  I feared our techies would veer off into the never-never land of tangential trajectories.  I feared the audience would see through our thin veneer of competence and confidence.  In reality, I had nothing to fear.

I am still convinced that it was the breakfast bag I had handed Dave that saved the day.  Once I made the introductions I had been prepared to lead the entire discussion, referring to Dave and Hal only when necessary and completely shutting out Tom.  Totally unnecessary.

Dave took the floor and threw himself into the presentation with full force.  He delivered succinct and effective points, highlighted the exact features of the product that the quant guys in the room wanted to have and spun any barbed questions into a triumphant outline of why the product was the best thing since the discovery of portfolio management theory.  The passion he had for the product, heretofore concealed beneath a silent and brooding exterior, hemorrhaged from him and filled the room with the sweet, oxygenated plasma of enthusiasm.

By the end the quant guys were begging for more details, looking up into their eyebrows and imagining all the time and effort they were bound to save and all the money they were going to make for the firm.

It dawned on me.  Tom was the problem.  Hal and Dave weren't sales guys.  They were the technical, Q&A and presentation guys.  Give them just a little direction, put them in front of the right people and keep them fed and fireworks would follow.  Tom, who was supposed to be the grand leader, the sales guru, was in fact useless.

I dreaded the debrief with Armin.

Testify

Having endured the Project Sinister presentation I hoped dearly to avoid Armin until a day or so passed.  Maybe he would neglect to quiz me on the team.  I feel guilty giving poor reports, a characteristic that could, in a more severe form, make me quite unsuited for this line of work.  I have no problem whatsoever doing it in the ethereal confines of my own thoughts or to someone's face.  Reporting back to the partnership, however, feels an awful lot like telling the teacher in Kindergarten that the kid who picks his nose in the back of the classroom peed in his pants when she wasn't looking.  If I just left it long enough the teacher would see the soaked pants on her own.  Why should I intervene?  Involve myself in the nastiness that followed?  Be a direct party to it?  Why get involved?

Because I wasn't given a choice.

And so, back on the estate the next morning, an elegant note written on engraved stationary laying atop my desk in the library.

"Lunch? - A."

Such a simple note in the midst of all that white space always throws me.

One didn't really reply to these notes.  It was a given that you would accept and anyhow there wasn't any clear mechanism to indicate your approval.  Like getting a card with "prière de répondre - regrets only" except there's no phone number.  Eventually, the butler would announce something like: "Mr. Armin has asked you to join him in the reception," and I would finish what I was doing and find him there, dressed for a formal business lunch.

Sometimes these kinds of invitations meant Armin took me out to eat, studiously ignoring the subject that would eventually be the focus of our lunch until we were seated and well into the main course.  Other times they meant a glass of wine while I watched him cook, he refused all offers of help, and emergence of the point in the Estate's cavernous and otherwise empty main dining room.

Each time it was a bit agonizing.  You knew it was coming.  Almost like the traditional Christmas family fight during dinner.  What would spark it this time?  Who would be the trigger this year?  My mother's soft, wistful sigh taken by my grandfather as a subtle slight to his childrearing abilities?  (So subtle, in fact, that no one else noticed it until he stiffened and grew silent).  Mention of the family dog that my mother had put down before my father returned home?  ("Everyone knows you always hated that dog!")  Discussion of the economy, leading without fail to the subject of my decision to go to business school? (My parents had wanted me to pursue a more "intellectual" career, whatever that meant).  I could only entertain myself by speculating in the hours before the line was crossed.

This time it was out to eat.  We flirted around a dozen discussions in the back of the car, over salads and bisque until he finally broached the issue in the midst of my lobster risotto.

"I understand you had an eventful meeting with Sinister's sales team." I have no idea how he would know that.  Surely, none of them would have told him.

"Well, yes."

"I suspect this was among the most important meetings Sinister will have this year.  Don't you agree?"  I was uncomfortable immediately and the tension had been bothering me.  I could almost feel the sweat on my back.

"Actually, I do."

"Tell me, Equity, do you think we put our best foot forward?"  I could see already where we were headed.  Armin was calm.  Resolved. Pensive.  Deeply calm.  He was using the sedate Britishlike accent. The one that reminds me of the Harvey Birdman, Attorney at Law Character, "Vulturo."  Tom was history.

"I am afraid not."  With this Armin acted surprised.  The briefest of eyebrow elevations.

"Oh?"  I was, unfortunately, expected to elaborate.  And so, as Armin gestured for the waiter to fill my glass with more red wine, I did.  I described the hotel fiasco, my suspicions about Linda, my ruse to find the team, the state of the presentation before and after my work at the hotel, the latte in the morning, the bag of food, Dave's performance, everything.  Several times along the way I was tempted to downplay the comedy of errors that was the Sinister sales effort, but I found that Armin's polite attention made even this kind of deception impossible for me.  He did not nod in agreement, or shake his head in bewildered horror.  He just listened.  Almost, but not quite, passively.  He always seems to receive such reports this way.  It is unnerving.  There was also the sneaking but totally irrational suspicion that he had somehow gotten the story already and the fear of the consequences that might follow my giving anything other than a faithful rendition.  So I was brutally honest instead.  It was painful.  When I finished Armin was silent only for a brief, thoughtful moment before speaking.

"I am glad I sent you, Equity."  I still don't know how he meant this, but I heard it as "I am glad I sent you, and not someone else, Equity."  I was still pondering this during the long pause that followed when he, suddenly as unconcerned as if he had not even heard the tale of woe I had just woven, caught the eye of the waiter again.

"I would like an espresso, please."

Paddles Prohibited Beyond This Point

The hedge fund people suddenly have issues with the product we showed them.  Things had gone spinningly in the presentation, but now they seem to have some kind of strange set of technical issues.  There is a lot of back and forth between Armin's highly placed friend, me, Dave and the technical team at the hedge fund.

Now things don't look particularly good.

This would be a bad strike for Sinister and, if the early concerns of the hedge fund's technical team pan out, it would imply that the primary product Sinister, and therefore we, had hung its hopes on could be worthless.

It never ceases to amaze me how Ph.Ds can disagree about technical details.  These are supposed to be statistical conclusions.  We can argue forever about the conclusions themselves but being unable to agree fundamentally on the data and the calculations used to get there is like taking contrary positions on whether 2 + 2 actually equals four.  Or so it seems to me.

If the two teams cannot come to some common ground quickly it probably means one of two things:

1.  The hedge fund team is calculating something wrong, there is actual value in Sinister's product but they are looking in the wrong place for it.
2.  Our team is calculating something wrong, there is zero value in Sinister's flagship product.

Of course, option #2 would be a dire consequence for Sinister.  It also, based on my experience in these matters, is probably the more likely of the two.

This is why buyouts of tech, service and other firms whose primary value is based on intangibles are more risky and undesirable than buyouts of boring manufacturing firms.  The due diligence is just harder.  How can one possibly know if the product is real?  With manufacturing you can touch it, see the machines, watch them work, hear the click of the 900,000th washer falling into a bin of 899,999 other finished washers.  A slick technical product that was "in the final touches of development" can evaporate right in front of you like so much Windex on clear glass, taking with it any hint of the grease of your already accounted for profits and leaving you staring right through to the now clearly visible abyss beyond.  Unfortunately, however, debt payments are not soluble in Windex.

"There Might Be an Issue"

Sinister melted down last week.  A lot was riding on the flagship product and now it seems clear that it either needs another 3-6 months of development, or it is entirely worthless.  In a way it doesn't make much difference.  Sinister was counting on the revenue from that product to deal with debt payments.  Orders were already in.  Now things look bad.  Very bad.

As it turns out, almost no real due diligence was performed on the technical side.  Typically, these things are handled by outside experts Sub Rosa retains.  This time it seems some corners were cut.  The party responsible?  Sinister's CEO, Jeff.

This presents a real problem as Jeff was friendly with some of Sub Rosa's partners and this was his path into his own partnership with Sub Rosa.  Want to be a partner in a private equity firm?  Bring a deal.  Close it.  Run the firm.  Make money.  On top of this, he was also responsible for doing a good piece of the due diligence.  Permitting this was an error.

It seems clear now that Sinister is in for a big lay-off, Jeff's head is on the block and there are rumblings that the entire company may be headed for an "orderly wind-down."

That I know about this at all is a bit of a shock to me.  It seems only to be the fact that I am constantly working so closely with Armin that I hear so much.  I walked into his office on Saturday to show him some analysis I had done.  He was on the phone and I motioned to him that I would come back later but he waved me in and motioned for me to close the door, which I did before sitting on the little couch in his office.

I am not sure why exactly, but I always feel like I'm visiting my father at work when I sit in Armin's office.  I catch myself sitting up straight, worried about posture, hands in my lap.  It is comic when I notice it, but I can't seem to stop.

It soon became clear that Armin was on a conference call with the partnership.  Not half a minute after I walked in, Armin hits the mute button and turns on the speaker phone.  He sits back, watching me blankly as we listen together.

What emerges is a long string of profanities from one of Sub Rosa's partners, Sean.  Armin has to turn the speakerphone down.  Sean is calling for Jeff's head "on a fucking platter." This is a little amusing since apparently it was Sean who originally recommended Jeff as the man for the job.  It is then suddenly less amusing because Sean is also the "industry partner" who was supposed to be watch-guarding the due diligence process for Sinister.  If he is yelling now, I thought to myself, it is to try and distract the group from his complacency in the matter.  Armin catches on without me saying anything.  Hit hits the mute button and chimes in.

"Now just a minute.  The partnership shares some of the blame here. Typically, we would have done technical due diligence like this ourselves.  But in this case, we were confident that it could be handled by our incoming CEO and our own senior members here."  Here, of course, everyone understands that Armin means Sean.

"Of course, none of us thought hard enough about the incentive structure we were setting up for our CEO-elect, did we?  How motivated was he to find and expose problems that might have killed the deal, considering without this position his chances to be elevated to the partnership were, shall we say, limited?  And now it will cost us a hand and a foot, and we may have to close the unit down entirely." Armin meant "an arm and a leg," but sometimes he has problems with English idioms.

The call went on for what seemed a long time.  The bank has already warned Sinister that they are close to breaking some revenue covenants.  News of this could cause them to seek "additional assurances" or even call a portion of the loan.  I haven't seen the loan terms so I don't know, but given the tone of the call, it sounds bad.  The call ends indecisively.

The entire thing is very embarrassing.  It's highly unprofessional on the part of Sub Rosa's partnership to permit this kind of oversight.  There are a variety of explanations, but it seems pretty clear that the partnership is poised to blame Sean.  With good reason, in my view.  I wasn't present for the Sinister transaction, but I heard that Sean pushed it though with something like vitriol.  It was quite a rushed thing, and attention to management and the transformation of the firm into a real operating unit was never really undertaken properly.  Enough little things, added up, can ruin a deal.  Can destroy a company.  There is little margin for error post-transaction in an LBO.  Now the losses are looming.  Someone will have to pay.

If I was shocked to be included in what was supposed to be a "partnership only" call, I was totally stunned when Armin sat me down and asked my opinion.

"What would you do?"  He asked simply.

Fire the CEO?  Try to buy out Sean, clearly he lacks the confidence of the partnership, and he potentially cost them a lot of money. Really, I had no idea.  Nor was I keen, exactly, to be asked to chime in on partner level decisions as a Vice President.

"These people can't even fucking keep track of projectors," he grumbles.  I stifle a laugh as best as I can.

Reconnaissance, Incentives, Failure

It is a poor organization that fails to learn from its mistakes.  And don't be fooled.  The press seems taken enough with private equity right now that it is hard to hear a story about a major (or minor) buyout failure.  They happen.  Often, in fact.  But then that doesn't make for good ink right now, does it?  Everyone knows that private equity firms are floating in cash.  That the mistresses of private equity moguls bathe in the more expensive tiers of champagne nightly to cleanse themselves after their filthy dalliances with their lovers.  Who would read a story about the woes of buyout firms.  Well, ok, you would probably.

So Sinister looks poised for failure.  And this is an interesting lesson.

First, the work you do with your lenders if something fails and after it fails is critical.  Every dollar you salvage for lenders from a ruined deal is worth five dollars earned in a success, at least when it comes to credibility.  Every dollar you salvage for equity holders in the same circumstance is worth ten dollars earned in a success. (They expect zero from a failure).  As a private equity firm, the credibility you gain from slugging through the mud to protect value for your partners in the midst of chaos is critical.  How you act in defeat is probably more important than how you act in victory.  This is particularly true in highly competitive environments.

So how does one handle a Project Sinister like failure?

At the risk of sounding Sun Tzu (and hence Gekkoesque) deals are made or blown before the closing.  A few simple things, and hence rookie mistakes, have put Project Sinister where it is.

First, check the products.  Then check again.  The mess Sinister is in would be fairly tame if someone had done more checking.  We likely would have pulled the expected revenue from the product down to a less optimistic level, extended the time before the product came "on-line" or pulled this revenue line all together for our model.  (In this case it probably would have killed the deal because supporting the debt service without this revenue line would have been a difficult bit of math to do).

Think carefully about the incentives and the motives of everyone who touches a piece of due diligence.  Do they have an interest in seeing the transaction go through?  In failing?  If you can identify any incentives that push them either way then you have a problem and you need to get some more independent views involved.  This is, it seems, exactly what happened with Project Sinister and Jeff, who was counting on closing this deal to get his cushy CEO position and then to work his way into Sub Rosa's partnership.  Sean, having suggested Jeff, wasn't the partner to be overseeing Jeff's due diligence efforts.  (If there ever were any).

Unsure about the risk of a given product or service line?  Seek assurances from the seller.  What representations, for instance, did the seller make about the product that's now imploding?  If the seller agreed to stronger assurances then the seller will have to stand behind those and make the buyer whole if something is missing. If not then we should have wondered aloud what it was the seller knew that we hadn't discovered yet.  In the absence of a good set of representations and warranties a buyer will often have to sue "off the contract," and that typically puts you into a common law fraud argument.  This quickly becomes a difficult (and expensive) process.  Still unsure?  Lower purchase price.  Risk and reward go hand in hand.

Don't get so married to a deal you can't leave it on the table.  I cannot say enough about how important this is.  The urge to "just do the deal" is powerful.  Often, when it is most powerful is when it is the most important to resist it.  Let the next idiot pick it up for you.  (Hopefully, bid the price up a little bit beforehand though).

In line with this, make sure the decision making structure one has in place for approving deals is independent enough without being overly burdensome.  Though I wasn't in the discussions, it looks like Sub Rosa let a single partner (Sean) dominate the decision and "push the deal through."  That was a failure in process at Sub Rosa, since there are fairly explicit procedures in place.  I suspect they weren't followed.  I also expect they won't be broken again.

So it is blowing up badly anyhow?  Recognize the danger as early as possible so that if you do end up sitting down with a lender there aren't any surprises.  Debt payments sometimes get missed.  Covenants sometimes get broken.  Waiting for it to happen and then apologizing is a bit more annoying for a lender than giving warning that there might be issues and working with the lender to resolve them or get a cushion for the company before the fact.

Don't throw good money after bad.  In the LBO business it is highly tempting to start supporting the ailing unit "just until it gets on its feet."  Doing this subverts one of the best incentives LBO's have going: The pain associated with a failure to produce ready cash-flow to service debt.  You probably have your hands on this unit because some big corporate spent half a decade doing exactly this, feeding every need of the unit without a thought to cost control or profitability. This reminds me of certain countries that never have to develop sophisticated financial and social structures to support themselves because they have billions of dollars of oil or diamonds in the ground that foreign firms will be happy to come extract for them.  If firms get used to being bailed out by a moneybags rich parent there isn't much attention or urgency about cash-flow.  This is the kiss of death. Sometimes firms will fail.  The nature of finance must sometimes be permitted to take its course.

As for Sinister?  We'll see.

Calm Before the Storm

Things are a bit slow.  It seems like there is plenty to do, but in fact, I have been spending a lot of time waiting for "trigger events" that will create work, but I'm not complaining.  Well, not really.

Project Sinister is, happily, mostly off my plate.

Project Spy looks poised to cause me a lot of combustible trouble, and a bunch of travel, but at present it is just the acidic smell of smoke.

Project Velocity looks like it's been bid up too high, and the bidding hasn't even started.

I have a LBO model on my desktop that I polished up all week, but since we are waiting on more figures from management to test some of the assumptions and flesh out things like working capital, there is very little I can do with it at this point aside from tinker with the LIBOR rate or do an interest rate sensitivity analysis.  How many ways can you slice revenue growth into different phases before you are deeply into diminishing marginal returns on your work?

I actually took all the interest rates in the model to three decimal points earlier just to experiment.

It won't last, but for now a bit of a breather is nice to have.

Speed Bump

Closing Project Velocity has taken a turn for the worse.  Or, I should say, the larger issues that have always been contained within Project Velocity have begun to emerge.

From the beginning we suspected that the involvement of other private equity firms would either price Velocity beyond the scope of reason, or make the process too prolonged and difficult to manage.  Both are now true.

Velocity's management has responded to our letter of interest, and more particularly to the pricing range we offered, with the mergers and acquisitions equivalent of a Walther Mathaeuesque grumpy frown, a long whiny letter.  It is three pages but boils down to "We think it's worth more," and is highlighted by this absolute gem of business literature:

"In our conservative estimation the cash portion of remuneration contemplated by your letter of [Date] may be in need of some adjustment."

No wonder this company pissed away so much money.  They must a committee of seven attorneys writing letters by committee or something.  What I wouldn't give one day to get a letter more like this:

April 3, 2006

Equity Private
Vice President
Sub Rosa, LLC

Re: Valuation of Velocity, Inc.


Dear Equity Private,

Too low.

Best Regards,

Velocity, Inc.

Of course, I know exactly which firm it is that's pushed Velocity's expectations into high Earth orbit.  I suspect it is pointless to pen a letter back pointing out that the cash in our offer is unlikely to shift downward much, while others are.  I'm not even really supposed to know who else is interested, but I do.  Since it's been a bit slow, I am going to write the letter anyhow.

Kierkegaard, Scientologists, Private Equity

An interesting thing happens when a sudden realization of impending doom hits a firm.  Suddenly, all those people who were "selflessly burning the candle at both ends to keep the company afloat," somehow find the capacity to "burn the candle at all three ends."  Project Sinister has managed to really boost sales of their secondary products after the dramatic crash and burn of their flagship product, on which the hopes and dreams of the firm (and the servicing of its required debt payments) were laid.

Suddenly, after a frank "all hands" disclosure by the CEO that the firm was headed for imminent ruin, along with the positions of all gathered in the room, (and that included the phrase "well and truly fucked") the sales force which was "working as hard as humanly possible" to sell "products that can never support the revenue needs of the company" has managed to "work harder than humanly possible" and return a cash-flow positive, record revenue week selling "products that can never support the revenue needs of the company."  As compelling a lecture as he gave you'd think he didn't know that he is only weeks away from being fired.  This is because he doesn't know he is weeks away from being fired.

Perhaps one of the many the lesson here is "don't provide a magic bullet if you want people to learn marksmanship."

When you see something like this it is hard not to think that some of the universal tenants about mankind forwarded by notable philosophers over the centuries have been, well, slightly off.

I've put together this convenient table to explain my new (and horribly disillusioned) position.

Group/Individual: Belief

Confucius: Man basically good.  (Significant evidence during the brutal warlord infighting of the Chou Dynasty to the contrary notwithstanding).
Rousseau: Man basically good ("Noble Savage").  Society makes man evil.  Widespread peasantry is the ideal state.
Scientologists: Man basically good, but the machinations of certain evil aliens long ago complicate matters.
Kierkegaard: Man is impossible to classify.
Puritans: Man is basically evil.  Fire purifies.  (Though this is hard to compute given how deeply carbon stains).
Baptists: Man is plagued by total, hereditary depravity.
Equity Private: Man is basically lazy.  Innovative and complex incentive and disincentive structures must be continually created and refined to compel any desirable behavior (including the absence self-destructive behavior).  Excessive gaming of the system will be employed at every opportunity to avoid doing anything resembling work.

Much as I enjoy the work (and really, it may not sound it, but I do) I dislike the disillusionment that it breeds in me.

I suppose I might have one dirt encrusted root, sticking precariously out from the side of a sheer cliff face yet to hang onto:  If we bought the company it's partly because the personnel were in the bottom quartile and, accordingly, I'm getting a poorly representative sample of the workforce at large.  Please, oh please, let that be true.

(Artwork: William Blake, "The Good and Evil Angels" c. 1805, c/o The Tate Collection)

Philosophical Private Equity

Sometimes a post I write sticks with me for awhile and grows (festers? ferments?).  This has been the case with my post yesterday on, well, motivational inertia.  Efficient markets depend on more than just perfect information.  They require actors able to actually process that information.  The assumption that actors are rational (i.e. that they understand the information and price it accurately) is a rather huge leap to be making, in some circumstances.  Like this one:

Urgently in need of cash, Sinister moved to shift some short term compensation (bonuses) towards longer term non-cash sensitive compensation (deferred bonuses, stock and/or phantom options).  The upside was out of all proportion to the short term compensation that would be sacrificed.  For example, in exchange for voluntarily forgoing a half-year bonus on June 30th this year, employees would be contractually guaranteed 120% of that bonus at calander year-end plus 100% of any year-end bonus they were due plus some amount of stock and/or phantom options.  Coupled with this plan was the caution that if not enough people adopted the plan there might not be any year-end bonus at all (as more layoffs would likely be in the works).   Maybe I'm dense, but that looks to me like a 20% IRR over the 6 month period just on the bonus piece, and with a reduction in risk to future cashflows. 

Not one employee took the option.

This entire analysis begs the question, "What the hell is Sinister paying bonuses for given the flagging performance of the firm," which I can only answer with a shrug of my shoulders and the glib comment "I wasn't here for the transaction."  Others I ask seem to generally answer with long, run-on sentences which invariably include the phrase: "contractually assured non-discretionary bonus plan."  I've given up asking why that wasn't axed on day one after the purchase or the seller wasn't obliged to cash it out.

As if all this this wasn't enough, several employees circulated actively after the plan's unveiling attempting to dissuade anyone at all from taking the option.  Why?  What possible explanation could there be for that kind of behavior?  It's not a unionized labor force.  What could possibly cause anyone to think this a zero sum game between employees?  The only zero sum aspect is the obvious loss to the firm of 20% of the bonus pool for people who opt in.

Is there some subtle externality that I am not aware of that is pushing up the risk component of a 6 month, interest bearing bonus deferral?  Is a contractual credibility of the company so low that the beta on a 6 month loan is 3500 basis points over LIBOR?  Maybe there's a bigger bankruptcy risk than I know about.  Or, as I have come to believe, are Sinister's employees just totally unable to price these things?  Is it a corporate culture thing?  Did the previous owners just inspire such ire that any action by the firm was met with immediate and organized resistance just for the sake of "sticking it to the man?"  If so, perhaps a complete churn of the workforce is warranted.  (Or we should milk all we can out of Sinister and leave the charred, smoking wreckage to wither and die).

See, I hate that I have started to think this way, but I'm running out of charitable explanations (and charitable thoughts).

Customers Can Reach a Human, Can't They?

Sinister LLC's Chief Technology Officer now lives in mortal terror of Laura The Debt Bitch.  A certain Sub Rosa partner woke up in the middle of the night and, likely still in a half-conscious, dreamlike state, had the "brilliant" epiphany that one of Sub Rosa's daughter firms should run our IT.  In the abstract this sounds like a clever idea.  Save on central costs, preserve confidentiality of sensitive email (except perhaps that email that talks about the sale of the daughter firm itself) and all the related goodies.  The plan came off its rails immediately when Sinister LLC was selected as the daughter firm to host our precious informational cargo.

Since the transition, we have become subject, quite literally, to weekly emails announcing that, beginning at 3:00 pm Pacific time on Thursday, email and the website will be unavailable for "a short period."  Apparently "short period" at Sinister LLC means "four hours."  No one seems more annoyed by this than The Debt Bitch.  Or at least, no one is quite as vocal about it.

Seemingly forgetting that this plan is the baby of a Sub Rosa partner, The Debt Bitch has launched a campaign to malign the information technology department of Sinister, LLC.  It isn't difficult.

About a week and a half ago she storms into my New York office at around 6:45 pm with a "Is your email working?"

"No," I replied.  "No one's is.  It's being... maintained."  I don't say that this is the second "maintenance" outage this week because she already knows.

"This is bullshit.  What mickey mouse bozo starts a major maintenance program at three in the afternoon on a workday and runs it for hours?"  I later discover that she's lit up because she's waiting on a rather important term sheet for debt financing from a hedge fund.  I'm about to answer her but I don't get a chance.  She sits down in front of my desk picks up my phone and is in the middle of dialing when she asks "Can I use your phone?"

"Go right ahead."  Like I could stop her anyway.  The Debt Bitch is typically animated, or at least expressive, when she talks on the phone.  Many a time have I walked by her office to spy her stalking back and forth in front of her window with her phone plastered to her ear, or lounging seductively on the little couch in her office with her legs up on the arm, pouring the sweetest golden honey into some debt dealer's ear.  (Now that I think of it, why does she get a couch?  She's only an associate.  I'm a Vice President and I don't get a couch).  This time she just stares at me with a blank and somewhat frightening look in her eye as the main line at Sinister, LLC rings.  Her expression turns dark when its answered and she leans forward, reaches over my desk and clicks on the speaker phone before depositing the handset back in the cradle.

"...Sinister, LLC, a Sub Rosa company.  Our office hours are 8:00 am to 6:00 pm Monday through Friday.  If you know the extension of the person you wish to speak to dial it now."  I recognize the apathetic, nasal voice that is Sinister's main receptionist.  We both look at the clock on my wall simultaneously.  It is 6:56 pm in New York.  3:56 on the Left Coast.

"What in the fuck is this?"  The Debt Bitch says "fuck" a lot around me, but seems to avoid it with anyone else around.  I'm not sure if this is some sort of seal of approval for me or not.  What does it mean when a co-worker feels free to use profanity in your presence but not around other employees?

"...For our directory by last name press 411.  For customer...."  She leans across my desk again and over the phone backwards to stab the "0" button on the number pad.

"Thank you for calling Sinister, LLC, a Sub Rosa company.  Our office hours are...."  The anger builds.  She stabs "1" with even more irritation.  A long pause.

"Thank you for calling..."  Fumes start to radiate off of her.

"Try three digits," I suggest.  "Maybe 001 will get you the CEO."  I'm joking.  I couldn't imagine wanting to talk to the CEO about an IT problem.

"...Monday through Friday.  If you know the extension...."  To my surprise she pounds "001" into the phone so hard the handset bounces briefly lifting the switch-hook and cutting the speaker off before settling back in place with a rattle and clicking off the extension.  It takes all my effort and restraint to keep from laughing.

Wordlessly, she hits the speaker phone and dials again.  "Thank you for calling...."  She smacks 001, a little gingerly this time, but I can still hear the irritation in her key presses.  A ring.  Another.  A third.  A fourth.  A quick pause, a fifth sort of half-ring as the call is dropped into voice mail.

"You have reached the office of Theodore Slone.  Mr. Slone is not able to take your call.  Please leave...."  Theodore Slone is Sinister new CEO.  Jeff, Sinister's old CEO, got the ax in no uncertain terms back in June.  It seems pretty clear that Sean, the Sub Rosa partner who tapped Jeff, is soon going to be "pursuing other interests."  I'm sure Sub Rosa will "wish him the best of luck in his new endeavors," however.  The Debt Bitch smacks "0" again.

"Thank you for..."  She smacks "411."  "Please dial the first three letters of the last name of the person you are calling."  This presents Laura with something of a dilemma.  She twists her neck to try and read the letters upside down.

"What the hell is the IT guys name?" she growls.

"Emmerson?" I ask.  She stabs "366" quickly just before I realize she was probably asking for the junior IT guy who sends out maintenance warning emails twice a week.  Todd Emmerson is Sinister's CTO.  Oops.

"Todd... Emmerson," says Todd Emmerson's voice.  "Press 1" says Sinister's apathetic, nasal receptionist.  Laura stabs "1."  A ring.  Another.  Three.  A fourth.  A quick pause, a fifth half-ring as the call is dropped into voice mail.

"You have reached the office of Todd Emmerson..."

"Does anyone actually work at this fucking company?" Laura demands.  I just shrug.  "Sinister has employees, right?  It's not populated with voice mail messages right?  Customers can reach a human, can't they?"

"...if this is an emergency Mr. Emmerson can be reached via cellphone on...."  The Debt Bitch brightens.

"Ah HA!"  She's getting quite good at dialing upside down by this time.  She punches in the cellphone number of Sinister's CTO.  A ring.  A second.  The phone is picked up.  A man's voice.

"Heh-low?" Car sounds.  Music is playing in the background.  I swear it's New Kids on the Block.

"Mr. Emmerson?"  Laura always uses last names of people older than her.  I picture her parents as old school German types who cling to the formality.  It actually serves her well.  She must sound like a IRS agent or a creditor or something because it tends to throw people off guard.  The music stops mid-lyric.  The car noises don't.

"Uh, yes?"

"Mr. Todd Emmerson?"  I swear she does that intentionally, that "Mr. so and so?  Mr. Bob so and so?"

"Yes?"

"This is Laura, from Sub Rosa, LLC."  A long pause, no recognition from Mr. Todd Emmerson.  "Your parent company?  The firm that owns you?"  I stifle a laugh and cover it with a deadly serious look because she said "Owns you," not "owns the company you work for."

"Oh... well..."  A pause.  "Heh-low."  Much more serious now.

"I'm here with Equity Private, my Vice President."  I am constantly tickled with the way Laura says that.  "We are very concerned about the continuing email outages and would like to ask you some questions, but if your in the car... I see it's nearly four o'clock perhaps this isn't a good time."  The sarcasm literally drips off of "four o'clock" like syrup.

"Well, no, of course.  Uh, how can I help you?"  Todd says "well" quite a lot.

"Mostly we are trying to understand why twice weekly maintenance is required?  Also, no one seems to be in the office today.  Is that because the email isn't functioning?"  She's being quite polite, really, but I can tell it's poised to get ugly.

"Uh, well, no one is in the office?"

"No one is answering the phones.  The main number goes straight to voice mail.  Who's in the office doing the maintenance?"

"Well, I guess I'm not sure."  The Debt Bitch says nothing.  A long, stony silence follows.  She's very good at those and she wins the stand-off.  "I expect it is routine maintenance on the Exchange server," Todd stammers.

"You are using... Microsoft Exchange?"  You would think Microsoft Exchange was illegal given her tone.

"Well, yes.  For email."

"I see," Laura deadpans.  A long pause again.

"Well, it is probably a backup operation."

"Probably.  Look, can you figure out what is going on and get back to me?  We are waiting on some critical and time sensitive documents here.  I would call someone else but no one else seems to answer the phones.  Is there maintenance going on with the phone system?"  I am sure The Debt Bitch was joking about the phones, but the question comes off as a serious one.

"The phones?  No."

"So you will get back to me today?"

"Well, sure.  Uh, what time is it there?"

"We are in the office every day until at least nine," Laura says.  "And most Saturdays until five or six," she quipps, rubbing it in.

"Uh, well, ok."

"Thank you."  -click-

He never called back.

Imminent Death of Private Equity Predicted II

More than a year ago I wondered after the ego inflating effect the private equity world was having on me.  I noted the increasing propensity to regard with a calculated disdain the business practices of Sub Rosa's daughter firms, and mused that the increasing dissatisfaction with life in general might not be a consequence of the newly found quest to deliver crushing blows to mediocrity everywhere.  Back then I said:

Really, I think this kind of bitching is just a response to the pressures of the job.  It is a lot of really hard work.  Small things, like dry-cleaning- which drives me batty- get under your skin.  Near perfection is your metric for everything.  You are hyper-sensitive to any, even slight, waste of time.  (That's just a consequence of living in New York City).

You start to use phrases like "We can put a man on the fucking moon but no one in your marketing department can do a price elasticity regression?" with the portfolio companies.  You respond to the growing loathing the employees have for you with "I am here to get this business back on track, not to win a popularity contest."  Of course, these things are true.  You aren't in a popularity contest.  (Or you are losing it very badly).  We can put a man on the moon.  No one in the marketing department can do any kind of regression at all.  The new associate who just joined is lazy and can't be counted on to put the firm first and, goddamnit, there is just no place to get my best suit dry-cleaned.

A few months later, I bemoaned the many dunkels who seemed convinced that the "private equity bubble" was on the verge of a large and wet "pop."

Death of the industry?  Hardly.  Not any more than the demise of Drexel was the death of the industry.  There's a ton of equity overhang still sitting around.  Even if the LIBOR pops up 2.5% we are still in very healthy debt markets.  The business isn't going away any time soon.  Maybe the headlines will, but that would be fine with me, and most of the people at Sub Rosa and the hundreds of firms like us that daily go quietly about the business of buying and, more importantly, improving companies.  That mostly orderly cycles and seasons in private equity would come to pass should surprise no one.

A flight to quality is certainly in the cards.  I can't wait.

I still feel the same way, but a new element, a new dynamic has come to my attention that complicates the analysis.  That element is concentrated in and personified with absolutely painful clarity by Natasha Mitra, first brought to my attention by last month's DealBreaker "write offs" pointer to the profile of young Natasha, an Associate at Carlyle, in New York Magazine's "Look Book" feature.

But before discussing Natasha's revival (and significant personal advancement) of the "culture of excess," I want to pass on a bit of Sub Rosa daughter firm lore.

Project Deadline, once just a twinkle in Armin's eye, is now a Sub Rosa daughter firm.  I worked extensively on the acquisition and the subsequent (and ongoing) transformation of the firm.

An essential department of the firm that rhymes with (and resembles) "hugest quarter horses" was populated almost exclusively by women.  (One young man of decidedly ambiguous sexual preference also haunted the group).  Five women in the department had been with the firm for five years, had started the same month and lorded over the department (and the firm) with a reign of terror that, owing to the critical nature of the work, penetrated every orifice of Deadline, Inc. with dozens of fear-slime covered tentacles.  The sole young man endured the machinations of the department with good humor (having a highly compatible catlike disposition- and I refer here not to his dexterity but rather the frequency and venom of his easily prompted, cutting remarks about co-workers).

New to the department was a younger (and considerably thinner) woman who I will call "Jill."  Jill was overeducated for the position, holding a master's degree on top of everything else, but approached the job with, if not good humor, a strong "work hard, finish early, start something new" attitude.  She was unlikely to endure any distraction, she kept focused and, consequently, was intolerant of any laziness.  She was "goal oriented" in the true sense of the word and always had good insights into the flaws within the department as well as their best cures.  These delightfully refreshing attributes made her the most productive, effective and beneficial member of the team and, of course, also doomed her to total and utter ostracization and consequent career failure in the firm.  But I am getting ahead of myself.

The department, like most of the firm, had long since fallen into a lax and complacent set of business practices driven primarily by avarice and apathy.  The chief goal of most of the group was to avoid taking any shade of responsibility, ownership or initiative (all of which were punished quickly, brutally and reliably with more and more responsibility, career advancement and managerial opportunity- horrific consequences for a group that strove to coast as long as possible without so much as a toe on the gas pedal, as if carbohydrate-petrol was at $5.50 a gallon).

When I first met her, it became totally clear to me that she was exactly what the department needed to get itself in shape, its current state being at least partially responsible for the low price (and therefore the motivation to buy the firm) we paid in the acquisition.  This, of course, is the point of private equity.  Or at least, I think it is.  We are supposed to shake up daft and purge dead weight (or excessively heavy live weight) departments, cull them of drag and the elements that create drag and profit through a combination of our operational improvements and the leverage we have applied.  We are supposed to do this quietly, efficiently and without regard for politics and the like.  Our job is to get the company running, not to be popular.  Popular, in fact, is the mortal enemy of efficiency.

Before I even met Jill, the denizens of the Department of Dead Weight had already aligned against her.  They had, quite rightly, identified her as someone who would increase the burden of their daily recreation work routine and, upon revealing the "hidden" potential of the group in productivity, and thereby exposing the current and totally artificial lack thereof, condemn them to a life of fear of dismissal and/or the far worse fate of doing hard work on occasion.  Already, they had begun to marginalize her and proceeded to administer the "death of a thousand paper cuts," secretly assigning her "below average" ratings in their secret performance reviews of her, the most tragically comic of which I discovered a month or two after the acquisition and that indicated that Jill "lacked initiative and reduced the efficiency of the department overall."  I almost laughed out loud, and likely would have, had the situation not been so sad.

Because Jill's performance reviews were done both by her peers and her superiors, all of whom where now conspiring against her, the picture on paper was a classic projection of the reviewers.  Jill would appear to any less diligent acquirer or review group to be a shiftless, lazy, unmotivated and unresponsive bit of driftwood.  A blocking troublemaker.  She had been passed up for merit increases twice.

Amazingly, she hung on, convinced that one or another of her memos (one I discovered identified an accounting error that had the company overpaying salaries for executives which, in turn, inflated payroll by over $1,000,000 per year, another pointed out that a criminal background check on an employee had been ignored though it indicated the employee was wanted for fraud in another state- the employee was a friend of an existing member of the department) would finally be read carefully and her worth would be recognized.

After an acquisition, Sub Rosa, like most private equity firms, develops a personnel plan (that we pejoratively call the "hit list") that outlines the new form of the organization (and therefore who will be invited to leave the firm and under what terms).  These plans have particular guidelines.  Usually, to streamline payroll, to use outsourcing when cost effective to replace expensive payroll slots, and to form a plan that "aligns the employee base with the future needs and resources of the firm."  An unwritten goal of these plans has always been to break up the empires and defuse long running office political campaigns.  Sub Rosa believes, correctly in my view, these cults of personality to be extremely hostile to productivity.

I was responsible for developing the sub plan to "harmonize" the Department of Dead Weight.  My plan was painfully simple and brutally efficient.  This was how we had been taught to develop such plans.  This was my third.  I proposed to eliminate 75% of the group, outsource many of its functions it to a vendor I had already identified (and with whom we had worked successfully before) and put Jill in charge of the transition.

My presentation was nakedly forward about the problems the politics in the department, its vindictive attitude towards the only element within its ranks that was producing anything, and pointed out that Jill's many memos had already identified over $1.5 million in annual savings on top of these changes (savings we had, as it happened, not expected in our initial analysis).  I also pointed out that one of the group's employees was wanted for an out of state felony while another may well be liable for harboring the first, that Jill had discovered this months ago and that this might have severe consequences for the firm.

"We are not kindergarten teachers, Equity," I was once told early on in my career with Sub Rosa when going soft on a daughter firm's finances.  "There is no nap-time, there are no time-outs, we do not have parent-teacher conferences where we discuss developmental needs.  We are here to fix the problems that threw this company in our arms in the first place.  We are here to do it mercilessly.  Pity is not a useful emotion for us or for our daughter firms.  The company is most likely in our clutches now because of pity and forgiveness on the part of former management.  We are not needlessly cruel, but we are, of necessity, brutal.  We hack off rotting limbs without anesthetic and therefore we must saw quickly and move on."  That visual stays with me still.

I learned my lesson on this point, this part of the transformation process.  Zealously identify flaws.  Expose them.  Propose and execute corrective action swiftly.  It is the later generation of management , brought in a year or so after the acquisition and the subsequent "transformation," that possesses the softer touch.  The surgeons fade away, the anger at their swift and heartless action, one hopes, fades too.  New management is given a clean slate, and appears much kinder and gentler.  How could they not?  Then Esprit de Corps can be built again.  The survivors will bond together with them nicely.  Very "Imperial Rome," really.

And so I expected I had done what was asked of me.  That it would be accepted without issue.  I was quite wrong.

"Why are we eliminating Lance?"  Lance is the Department of Dead Weight's sole male of "catlike disposition."  The question is from a Principal, Chris, who is fairly new to Sub Rosa.  Chris comes from a "public relations" background and is part of Sub Rosa's new "image conscious" focus.  I have not had much contact with him before this meeting, fortunately.

"Lance is a major part of the murderous political cabal in the department," (my prior slide in the presentation was entitled "the murderous political cabal," bore the likeness of Charles II and included a time-line that outlined the department's systematic, and baseless in my view, elimination of six employees in eighteen months who had fallen out of the department's favor.  Three of these employees have since instituted wrongful termination suits one of which was going against Deadline, Inc.) and in the 5 weeks I have been poking around it has become clear to me that he not only produces little himself but, more importantly, he is a significant drain on productivity."

"How can we fire him?"  I feel I have not heard the question properly.  There is a long pause as everyone looks at Chris.  "Won't we be looking at a lawsuit?"  I am even more puzzled, lawsuits have never worried us before, but, amazingly, a few nods from the audience now.  "I mean it is discriminatory.  Because, you know, of his... status."  More nods.  Finally I catch on.  Chris means because Lance might be gay.  I play dumb.

"I'm sorry, what status do you mean exactly?"  There is an uncomfortable silence.  No one wants to speak it out loud.

"Carrie warned me about this."  Carrie is a member of the Department of Dead Weight.  I wonder to myself how Chris knows her first name and when/why he had been talking with her.  "Well, you can't just eliminate people because we feel they might be a drain on productivity."  Now I am close to shock.  Who are these people and what have they done with the Sub Rosa employees?

"Actually, that's my fucking job," I want to say, but I stay silent.

"Let's get a group together to review the personnel plan for the Department of Dead Weight," Chris suggests.  Murmurs of agreement.  That's code for "Death by Committee," for my plan, which is now, clearly, out of my hands.

And this is what I mean when I wonder after the future of private equity.  Suddenly, cost savings, efficiency and the like are secondary considerations.  Now public relations is the focus.  And why not?  There is enough cheap debt to use leverage to give us the returns, at least its cheap right now.  Why do the hard and unpopular work of improving efficiency?  Lance's feelings might, after all, be wounded.

And, dear reader, this is why I point to dear Natasha Mitra.  Natasha "I love to consume.  Consuming is my specialty!" Mitra, who totally works with "this woman at Louis Vuitton" to pick out just the right $3,500 accessory that looks like a broken rope bridge from some civilizationless jungle with cannibals still running about.  What missionary got eaten to provide you with that broken rope bridge of a purse, Natasha?  Natasha who thinks the oversized and overpriced Six-Flags theme park glasses are "wild and crazy and different."  She's not alone.  The male Natasha is our friend Joshua Butler, of recent DealBreaker and Fortune fame bent on "merging" with KPMG, which understands his needs and expects his commitment.

This could well be the beginning of the end for private equity.  This side effect of the public relations focus.  It is a vicious spiral really.  More puff pieces about private equity.  Showing the human side of the business.  Putting a kinder face on the process.  Hiring "finance professionals," whos finance degree is in public relations.  Putting the spotlight on the players, and pulling it from the game.  This is the new face of things.  This is the attitude that creates Natashas and Joshuas scores at a time.  And the more Natashas there are, the more consumption is their specialty (rather than cost cutting) the more resentment is bred via their painfully obvious excess, and, in turn, the more public relations and the more player focused the business will become.

Oh, and Jill?  She was the only one fired in the department.  So far, none of the errors or cost cuts she identified in her tenure at Project Deadline have been acted on.  Oh, and I have good reason to believe that Chris is sleeping with Carrie.

Death by Dogmatic Documentation

Project Dustbowl has required quite a bit of documentation review both in the pre- and post-acquisition process.  Part of my job for Dustbowl, after being effectively removed from the personnel review team, was to go through much of the miscellaneous documentation that wasn't deemed important or was discarded as irrelevant during the initial due diligence and distill these down to a summary for the transformation team.  Often you find interesting things in these "miscellaneous" sections after an acquisition.  Other times it gives you a picture of how dysfunctional the organization really is.  (This would imply, of course, that these documents should not have been discarded by the due diligence team in the first place, as evidence of dysfunction should bear on price, but that's another story).

Project Dustbowl's miscellaneous section contained this document (that I have redacted but is otherwise totally original):

Parking Garage Process Flow.pdf

Adventures in Diligence

When Barbara introduces me to the team she includes the phrase: "She is on our side.  She is one of the good guys- er, girls.  I want you gals to treat her as family and give her whatever she needs."  Don't get me wrong, I'm not fooled by these kinds of public pronouncements, because you never know what was said before them (when you were not in the room) or what will be said after them in your absence or one-on-one with the individuals now standing around smiling at you.  I am standing in the offices of "Challenge, Inc.," a $300 million dollar company, doing due diligence on-site.

Sub Rosa lives in small and mid-sized buyouts, and so occasionally we come across these firms that just don't have a strong grasp of the acquisition process, the right way to run it or, for instance, that you really don't want potential buyers roaming the halls of your facility just because it seems like the "right thing to do, giving open access so you can really see what our family here is like."  Dear readers, allow me for a moment to just offer you a little piece of advice if ever you want to sell your business or know anyone who does:

Don't ever, ever, do that.

So I was introduced to the team putting together records for us to review.  Normally, there would be a sell-side banker organizing all this, a data room set up in some lawyer's office somewhere (or, indeed, online) and quiet whisperings in conference rooms late at night in order to avoid tipping off the employees that the place might be for sale and they might all be out of a job.  Not so with Project Challenge.

Instead, a "small" team of upper-middle management was let in on the "secret," and asked to help Sub Rosa "learn the business."  I suspect senior management felt this would increase the valuation of Challenge, once we saw what a wonderful place it was.  It helped that it was a no-auction deal.  There was only one group of us to show around, after all.  Of course, what a management team like this fails to realize is that potential buyers haven't been drinking the Kool-Aid for years.

I suppose I should feel guilty for taking advantage of the situation, but that's sort of my job, isn't it?  Armin actually had Laura the Debt Bitch at Challenge's office for awhile until someone, totally unaware that a diligence team was roaming the halls, asked "Who's that girl who says 'fuck' all the time, is she a new employee?"

I asked Armin what, exactly, I was supposed to be looking for.  He looked at me like I was wearing a tie.  "Whatever you can."  And so, I wandered around.  Listening.  Smiling.  Hanging around the little kitchen and taking note of the gossip.

Barbara had been so kind (and stupid) as to provide me a cover story.  I would, it seemed, be joining the firm soon, and giving me a big Challenge welcome would be the best way to show me how wonderful things here were.  Astute Going Private readers will by this point have guessed that Challenge, Inc. was in California.

At some point in my wanderings- and really, let me pause to say that the Challenge people, particularly the girls, were really very nice, I was invited to something like 4 dinner parties and twice to after-work drinks after only 48 hours- I heard hushed tones emerging from a little set of three connected offices.  Having long ago in my youth learned to listen very carefully when anything was spoken in hushed tones (that's where you hear the interesting bits) I keened my ears and caught as much as I could of the conversation.

"But it isn't, like, a few of the files, it is, like, almost all of the files," this from what I could only assume would be a ditsy, 20something blond once I walked around the corner.

"Well, it could be a clerical error," this from what I guessed had to be her less excitable brunette friend.

"You don't understand, it is like it was a clerical error if one of the agreements was signed.  That's how many aren't signed," I couldn't hover around much longer without obviously eavesdropping, so instead I just walked right in to the offices, like I had just turned the corner in a hurry, and then stopped short suddenly and threw a mask of confusion on my face.

"Oh.  This isn't...."  Here I trailed off as if to name the name of someone's office I was looking for.  Since I didn't really know a name of anyone on that particular floor I hoped the girls now looking at me- mouths agape like they had just been caught in a state of near undress with their boyfriends on their parent's couch- would just fill something in for me.

"Uh, hi," said the nervous blond.  (I was right).

"Hello," said a much more composed blond.  (I was wrong).  "Oh," a look of recognition pulls down over the composed blond's expression.  "You are the new girl Barbara introduced."

"Yes!" I beamed.  "I am!"  This worked like a charm.  The nervous blond fell right into formation, as if she had just found a herd of familiar grazing animals and now she would be less vulnerable to predators roaming the great, gray commercial pile carpeted expanse of the office.  Safety in numbers, you know.  I could almost hear the inner monologue over the B-flat hum of the fluorescent lights:

"Oh, one of us, ok, I guess that's alright then.  Phew!  Ok, where's the watering hole?"

"What are you guys doing?"  I asked innocently.

"Well..." And again, I could almost hear the inner monologue:

"It is supposed to be a secret, but, like, Barbara, like, introduced her and everything."

"...we are supposed to put together all the employment files and pull the actual employment agreement and the NDA everyone signed so it can be copied for someone, you know?"  Yes, actually I did know.  That someone it was being copied for was Sub Rosa.  "But there's this, like, problem."

"What kind of problem," I asked.

"Well, Donna and Ted, you know," and, interestingly, I actually did know this too, since "Donna" and "Ted "are the founders, "they kind of didn't ever sign any of them."

A long pause.

Here it suddenly became a challenge to maintain my composure against the many competing urges that ran riot in my head.  At once I had to bite my tongue to avoid laughing, spitting up and adopting a sly, sardonic smile.  Nervous blond handed me the folder in her hand, opened to the employment agreement and pointed to the signature line.  More composed blond looked like she thought this was a bad idea, sharing with me, but her concern never rose to the level where it could override her desire not to have a spat with nervous blond about it right there in front of me.  Sure enough, right at the bottom, a signature line with both names neatly typed, Donna and Ted- and why the founders would be personally signing employment agreements (outside of some hokey family corporate values crap) was beyond me- with two glaringly empty lines above them.  Why two signatures would be required was also beyond me.

"Wow, how many did they forget to sign?"

"Like, uh, all of them," the nervous blond blurted out.

"No, not all of them," now her timid friend managed to correct her, and the reason why she hadn't before came into a very sharp focus.

"Ok, like, look," nervous blond puffed herself up, her voice growing, not so much louder, as more shrill and something like rapid-fire. "Something like three quarters of them are unsigned and anyhow it doesn't matter because there are a lot that are unsigned so really the exact percentage doesn't make a difference."  An uneasy silence followed this.  Apparently it bothered nervous blond more than anyone else, since she, herself, was the one to break it.  "The employee NDAs aren't signed either."

This was probably not good.  Just off the top of my head I wondered how Challenge would even begin to correct this.  Was a counter-signature required to make the agreement effective in California?  If not, certainly an employee's attorney could make quite a stink about the matter.

"Well, they are just going to have to come in here and sign them all."  Never fear, Challenge, Inc., nervous blond has the matter completely under control.  But this made me think.  There was also a date line under both signature lines.  How would they date the new signature?  With today's date?  With the date the employee had signed?  Well, the later seemed to me quite a bit like forgery.  The former seemed to suggest that employees hadn't been bound for a long period of time either by non-compete clauses, non-disclosure clauses or, indeed, any other provision these contracts purported to cover.  And had employees been given copies of their executed agreements?  I found it hard to imagine that not a single one of these hundreds of employees hadn't asked for a copy of their signed employment agreement.  So if all these were then signed with today's date, or even the date of the employee's signature, you'd have documents that either didn't agree on what looked like a fundamental term, or that looked like they might be forgeries.  And what if they did sign them, but never disclose the gap to Sub Rosa.  I wondered if these sorts of liabilities were substantial (I had to guess they might be) and if they were and Challenge didn't disclose, would they rise to the level of securities fraud if Sub Rosa bought the company?

"We need to get Thomas down here and ask him what to do."

"Yeah," and, you know, it occurs to me that it doesn't really matter which blond said what anymore.  Thomas, I guessed, was probably the head of Human Resources.  "This ought to be good," I thought to myself.  I was right.

Adventures in Diligence II: The Paper Cut

Thomas reminds me of a certain long-winded CEO from a deal long since past who I used to call "The Dirigible."  This owing to the way he floated around, his massive inertia rendering him unable to operate without dozens of men hanging from ropes guiding him in and out of his hangar, at the mercy of the prevailing winds, filled with hot air, or at least some lighter than air gas, the fact that he occupied an unduly amount of space, was prone to sudden, fiery explosions and was highly annoying to the other, faster air traffic trying to navigate in the airspace in order to actually get somewhere.

True, it also just tickles me to picture a certain movie scene with Ken McMillan ("Bring in that floating fat man, the Baron.") when I remember the inflated CEO, but really my analogy lends a bit too much importance to Thomas' description.  News announcers would ignore, I think, his spontaneous combustion.  Or, at least, none of them would be compelled to cry, "Oh, the humanity!"  Come to think of it, they would have ignored the CEO's spontaneous combustion too, well, aside, perhaps, from firing up "Bang the Drum All Day," by Todd Rundgren on the PA speakers throughout the office.

Thomas turns out not, in fact, to be the head of Human Resources.  He is the Chief Operating Officer and CFO.  I take this to mean that he manages the company's employment issues and payroll.  The Debt Bitch later explains it to me when I tell her his title:  "Yeah, he's the head of Human Resources."

The Blond calls Thomas and starts to explain the situation.  She gets about as far as, "...and so, like, we found that none of them," and here she is interrupted in the background by The Other Blond ("Not none of them!") before correcting herself with "...practically none of them are, like, signed.  And so we have been trying to..."  At this point even I, standing halfway across the room, can hear the "Fuck!" and the click of Thomas hanging up on The Blond.  Somehow, though, she keeps talking.  And keeps talking.  And keeps talking.  In fact, from the initial click to the point where I can hear approaching the loud, heavy footfalls of what must be a very corpulent man in shoes with bad heels, is about 18 seconds.  They grow in intensity, like a scene out of a bad horror film, until, finally, right as The Blond is starting in with "Hello?  Hello?  Are you there?" around the corner rounds Thomas "Many of our clients find pants confining so we offer a range of alternatives for the ample gentleman" Falder, CFO and COO of Challenge, Inc.  All 380 pounds of him.

And then, the moment that will always remain with me, The Blond starts in with inane chatter and Thomas, with surprising agility for a man of his gravity well, presents her with an open palm in the best, "talk to the hand because the face ain't listening" execution I have ever seen performed live.  He doesn't even add a vocalization.  It occurs to me, just then, that Thomas' mastery of The Blonds could be a clue that it is not just his mass that is substantive.  They sit up and shut right up.

As if he weren't already an imposing figure, the floating fat man then produces a green laser pointer and wordlessly directs it at the file in The Blond's hand.  In stark contrast to the frantic and nervous tenor of her previous drivel, she now recites things in a methodical, fact-based litany that any auditor would appreciate.  "Well, Mr. Falder," no "Thomas" anymore apparently, "there are 600 employee files with employee contracts in each folder.  There are non-disclosure agreements separate on all of the files before last year, when we re-wrote non-disclosures into the employment agreement itself.  At least 530 of these and the employment agreements have never been countersigned by the company."  The word "like" is never uttered.

I blink.

I blink again.

The dirigible is a fucking hypnotist.  Or maybe more accurately, a dog trainer.  I have to get a green laser pointer.  I just have to.  He is silent for a moment, the laser temporarily extinguished.  He turns, scratches his chin, furrows his brow and then turns back.  The laser pointer shifts to the file cabinets.  The Blond jumps to respond.  "All the files are here, Mr. Falder.  These are the only copies."  How the hell did she know the question?

Finally, he speaks.  "Besides the people in this room, who knows about this?"

Now, dear readers, whenever you hear this phrase, be exceptionally careful.  Do not, under any circumstances, make the mistake I proceed immediately, by sheer force of habit, to commit.  "Just the people in this room," I reply.

Falder turns to look at me, someone he never noticed in the room before now.  I realize my mistake.  I failed to use either the hypnotized monotone, or the frantic "Blond Panic" (tm) voice.  The "Blond Panic" voice would also have been a mistake, but Falder would probably have just pointed the green laser pointer at my mouth and I would have fallen into a trance-like silence and he would have, after furrowing his brow and looking curiously at his laser pointer- had the batteries weakened?- been comforted enough to forget the incident.  From the look on his face it is deadly obvious that I am no Blond (literally or figuratively).  He has detected something like intelligence in me, and that this is both unexpected, and threatening.

I am suddenly in the glare of the Gorgon.