In my final Buyouts West Liveblog, I’m covering a panel called “The Great Debates,” a panel moderated by Houlihan Lokey’s Lindsay Alley. Panelists include Mark Bradley of Morgan Stanley, Kelvin Davis of TPG Capital, Dipanjan Deb of Francisco Partners, Robert Poletti of Levine Leichtman Capital Partners, and Ajay Shah of Silver Lake Sumeru.
2:29 I’m joining this whole thing about 10 minutes late since I was recovering from the panel I moderated just prior. We’re talking about Lookin’ Ahead. I’m not sure why the panel is called “Great Debates” because there doesn’t seem to be any debates going on. I want buzzers and disagreements.
2:31 PE returns have had unfair high expectations over the last few years, someone says.
2:32 Someone says the best investments happen in the down cycles. This is conventional wisdom, we want to know HOW to invest in a down cycle, sir.
2:33 Oh snap, we have seen a disrespectful disagreement. Something about credit falling in sympathy with equity falling. They’re talking too fast.
2:24 Davis of TPG is encouraged by the opportunities in this cycle. Lindsay says “the days of running LBO models at 20% returns are over.”
2:35 The mod asks Silver Lake Sumeru’s Shah on deal ops. He said “I spend my days and nights looking at the technology sector.” Within technology, he says he’s not so into companies with big capex’. He said smaller business are in major need of scale and they’ve been hurt by the downturn now more than any other. Decent companies that’ve gone down in valuation 85-90%. He says the smaller companies need to consolidate.
2:36 In a world where there’s no leverage, its more like “who’s going to need capital when PE has capital?” MS’s Bradley says.
2:37 The mod asks if funds can invest in healthy and distressed companies? Poletti says its necessary. Lots of needy companies out there. He says Las Vegas Sands is a good example of a needy company that puts a huge premium on equity availability. Situations that have a “huge element of desperation.”
2:42 Potelli still talking, now about market caps and how wacky stocks are these days. Boy are they.
2:43 Can you balance distressed investing in a sector focused fund? Yes, someone says. I didn’t realize all the panelists here were distressed investors. I thought distressed wasn’t something you just dabbled in, I thought you had to have a special skill set for that. He said there are companies that look distressed that aren’t and vice versa. Either way, both of em are cheap right now.
2:45 Shah says its not so much as healthy versus distressed, its what you can do to make it better. Meaning, distressed companies with no options to improve aren’t attractive no matter what.
2:46 The mod asks about competition with strategics. Bradley calls the PE biz model “capital light, people light, brains long.” Ha ha!
2:46 He adds that PE firms move faster than CEOs and corporate management teams can.
2:47 One of the guys’ firm bought a company that had no GAAP financials, and no strategics wanted to touch it. So PE has the “not picky” advantage? I kid.
2:49 PE had a lower cost of capital in the previous upturn. That’s gone, so that advantage is gone, Davis of TPG says. However, now, he says, TPG acts like a strategic in some ways. He cites TXU, saying TPG’s portfolio looks a lot more like strategics. Ok I guess I’ll buy it. Not going to do any WaMu cracks here.
2:51 Shah is insisting that debt is available. Just expensive. That’s like saying, I know you’re hungry and there is food for sale, but you can only buy caviar. I can’t wait for someone to contradict that. Debate!
2:52 Davis lists some things that have to happen before debt comes back. Long way to say “confidence.”
2:53 Finally! Poletti calls everyone out for not directly answering the question. Laughter. He says second quarter of 09 debt is going to come back.
2:54 Bradley says second quarter of 2010. Nice, way to go out on a limb.
2:55 Question. John Troughton. He wants to know why people dont want to buy equity and want to buy debt. Deb of Francisco Partners steps in and says becuase its cheap of course! In a more intelligent way, obvs. Davis jumps in to answer and gets a little testy explaining the basics of who controls what and par and leverage and transaction value and X and restructuring and dilemmas and destinies.
2:58 Surprise surprise a politics question. What is your biggest fear (that’s not a leading question)? Davis says politicians like to find a culprit and blame it and regulate it. He says it’d be misguided to point that at private equity. He says the word conspiracy. He says PE is not the culprit.
3:00 The mod asks if PE is the anti-left (in so many words). Should PE focus less on making money and more on “creating value.” Shah jumps in to say he doesn’t buy the premise of the question, that PE hasn’t already created value. He says he’s more concerned with a labor-friendly restriction environment. Sarcastic reference to auto industry.
3:00 Shah adds that he’s worried about carry getting taxed as ordinary income.
3:02 Hypothetical time! What would Mark Bradley do for PE if he were president? He says he would take the carry debate off the table. He says he’d reccommend that PE do a better job at PR so people know that pension funds and CalPERS, CalSTERS, etc benefit from private equity.
3:04 Someone jumps in with some quasi liberal views. Against the war in Iraq, against subsidies to cotton growers, against dependance on foriegn oil.
3:05 What problem is caused by the lack of exits? The only real problem is the liquidity for LPs, someone says. Luckily the pace of deals has slowed so that they have fewer capital calls from sponsors as well.
3:07 “Being early is not good,” says Davis, in reference to jumping in to the down cycle. He adds that the notion of a quick snap-back is not likely. Goes back to the PE like a strategic idea, “there’s no such thing as a generalist anymore.”
6:09 The mod asks about public private equity funds and says “will they come back?,” referring to KKR and American Capital. I don’t think that makes sense. ACAS isn’t going anywhere, they’ve been public for 10 years or something! And they’re a BDC, its not the same as Blackstone and KKR. Yet Bradley says “it will probably take a back seat for awhile.” I’m so confused, these are not the same thing.
6:11 And we’re done!
6:12 The conference is concluding with a Deal Flow networking + cocktail panel, which I plan to join. peHUB will post the videos from these panels later this week!