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Money For Nothing?

Over the past week, Dan and I have been reading The Buyout of America, a new book about private equity by business reporter Josh Kosman. Due out on November 12, the book intends to expose the ways private equity firms destroy the companies they buy.

The book draws a straight line from the LBO to a Chapter 11 in the case of some of the largest LBO-backed busts and makes the case that private equity firms damage healthy companies and hurt innocent workers.

I haven’t finished it yet, so I can’t contribute an opinion on the book’s thesis, except to say that it’s written for a more general audience, so it does not dive deeply into some of the particularly wonkish aspects of the industry that we cover here at peHUB.

Instead, I’d like to share one detail which exemplifies the book’s overall tone. It’s an observation from an interview with Scott Sperling at the offices of THL Partners, which owns Warner Music. In a time of growing populist rage against things like Wall Street bonuses, corporate jets, and yes, THL’s profit on its failed investment in Simmons Bedding, this kind of anecdote can be particularly effective, regardless of whether it tells the whole story.

And aside from all that, the existence of weird, cheesy deal trophies like this is, to me, just plain amusing. From the prologue:

Almost hidden from view, just right of the entrance, was the framed front and back cover of what looked to be a 1970s-era record album. The front picture showed men wearing leather jackets standing on a dirt road. The group had been renamed Hurdle Rate, the record was now called Cash on Cash. Sperling’s face and those of some of his partners had been superimposed on the bodies of some legendary band.

Song titles on the fake album cover’s back included, “Leaving on a Private Jet Plane,” “Take these Bonds and Shove ‘Em,” and “Edgar, Don’t Miss Those Numbers,” a reference to Warner Music CEO Edgar Bronfman Jr.

Sperling arrived and proceeded to spend the next hour saying things like “Cost restructuring was not just to save costs. It was to make Warner a much more efficient and effective competitor.”

But his explanation was hard to believe. I kept thinking about how PE firms had taken more money out of the business than the company was saving through cost cuts. The faux album’s last track was “Money for Nothing.” It could be, I thought, the anthem for the whole industry.