Monday Mouth-Off


The sun is shining, the publicization of private equity lives on via Apollo and I’m still working off an excess of homemade mead from a weekend wedding. In other words, it’s time for some Monday Mouth-Off. 

*** Z writes in on the HCA syndication details: “I wonder if BofA and Citigroup will syndicate some of their equity in the HCA deal to hedge funds. Seems like that would be an interesting way to attract clients: Do your trading through us and we’ll occasionally give you a piece of these lucrative buyout deals.” 

*** Some emails on the published rumor that 3i Group could get acquired by a larger private equity firm. Jason writes: “You missed the fact that 3i’s huge number of international offices could be attractive for a firm looking to expand beyond the major financial centers… It would help lower the risk inherent of moving into new countries.” Randy agrees: “It can be costly and time-consuming to launch new practice groups, and 3i would provide a ready-made solution for a mega-firm looking to protect its returns via some mid-market diversification.” 

Don, however, feels that 3i does not have any likely suitors among PE shops: “I could see some major financial institution taking a gamble on 3i, but not an established private equity firm. Carlyle, Blackstone, Apollo and others have proven their ability to launch new asset groups, whether they be mezzanine, real estate, venture capital, etc. They’ve also shown they can go public (i.e., KKR). If these firms want a group devoted to smaller deals, they can just form one on their own (maybe even poach some 3i talent). There is no need to spend billions of dollars and tons of due diligence to acquire an existing firm.” 

Finally, Sameer notes that my example of Sequoia Capital and Westbridge Capital might actually be “a case of market entry through acquisition, rather than a case of market consolidation.” 

*** Anonymous on Burger King: “For all of the whining about SOX and the cost of compliance, I’m surprised that no one’s mentioned the fact that the BK termination fee is around 3x what most sources estimate the cost of annual cost of SOX compliance to be.” 

*** Finally, Joe asks: “First you supported the minimum wage increase, and now you’re complaining that private equity firms are making as much money as possible. You’re a fraud. Why did Thomson Financial ever hire someone who has such low regard for free markets?” 

Well, Joe, TF originally hired me back in 1999 because I came cheap (see, free markets at work). To answer your broader point: I actually have quite high regards for free markets, but also understand that such freedom is only sustainable via certain regulations and an overall pursuit of justice. The absence of either would be anarchy, just like it would be if our free society abandoned all of its civil laws or rewrote them by way of dice. I believe that enterprise suffers when its workers are preoccupied with their children’s hunger, and that the private equity market will suffer when it favors short-term financial engineering over long-term business creation. Perhaps we just must agree to disagree…