I started covering private equity at Thomson Reuters two and a half years ago, right around the time a black cloud descended upon the industry. It was the fall of 2007: Blackstone Group had just gone public, Newsweek had cursed private equity by affording it the cover, and the credit crunch was settling in for a nice, long winter.
I couldn’t have picked a worse time to dive into the industry.
In the past two years, I’ve gotten to write headlines like Merry Christmas, Your Firm May Fail and There’s More Than One Way To Spell “Jackass”. * I’ve badgered firms like Sun Capital, Apollo Management, and American Capital. I documented layoffs, clawbacks and writedowns, and covered PE-backed bankruptcies in meticulous detail.
Basically, things got ugly.
Two and a half years later, I’m leaving, and so is the black cloud. My stories of impending doom read like they were written in another era. The unthinkable is happening. Private equity, it seems, is back on top, with almost no bruises to show for its mistakes.
Larger and larger deals are being struck with cheaper debt and capital structures resembling those of boom-era deals. We’ve seen the brazen return of staple financing, PIK toggles, second lien loans, and covenant light terms.
Meanwhile, large buyout firms were able to fend off the “wall of debt” facing their overleveraged portfolio companies with the amend and extend phenomenon of last year. Private equity lost a small percentage of its portfolio companies to bankruptcy, not nearly to the extent some predicted. This year the LBO-backed bankruptcy list, typically a goldmine of writing material, has dwindled to a less-than-newsworthy trickle of one or two companies a month. Other than Chrysler, the mega-buyouts have not crumbled. Half of them are gearing up to IPO! Meanwhile buyout firms across the board wrote up their portfolios at the end of 2009. Before you know it, Steve Schwarzman will be throwing lavish birthday parties all over again. (To this I say: Never Forget!)
It doesn’t seem fair, after all of those dividend recaps and risky capital structures and irrationally frothy auctions, that private equity, particularly the mega-firms, could come out unscathed. It reminds me of when you run into that horrible bully from your high school, the one you like to imagine is bagging groceries in some dead-end town. But it turns out he ended up with a great family, successful career, and an all-around happy life. Conventional thinking (and the teen movie canon) teaches us that that guy always gets his comeuppance. Not so in the real world, and not so in private equity, apparently.
Perhaps private equity can thank the lobbying forces of the PEC, or the half-hearted rage of LPs that appears to be settling for modest compromises on fees and terms. There’s also that lovely “private” aspect of the industry, and lastly, the built-in long term nature of the business. In recent months, private equity has confounded me with its resilience, or perhaps infallibility, or perhaps its dumb luck. Either way, you all are not going anywhere.
*For the record, there are a number stories I wish I had had time to write over the years. Their headlines, from my rainy day file, include:
This Debt Thing is Getting Out Of Control People
Either KKR is Lying or I’m Clueless
Checking For A Pulse: Have You All Given Up On M&A Altogether?
Zombie Companies Have A Debt Wish
Go Ahead, PIK Your Toggle
IFRS: Your New Best Frenemy
Stop Naming Your Firms After Subdivisions, Star Signs and Latin Phrases
So with that, I bid peHUB adieu!