Ever since the book Barbarians at the Gates came out in 1989, journalists have made egregious use of its title in any article touching on private equity, mergers and acquisitions, or Wall Street in general. But with the explosion of mega-buyouts over the past few years, as well as the reascent of Kohlberg Kravis Roberts to the very top of the private equity game, the “Barbarian” references are already on their way to a record year.
A recent example: reporting on the KKR-led buyout of hospital group HCA, the Wall Street Journal came up with “Barbarians at the Bedside”. Nice one.
PEI did a little research on this topic with the aid of Factiva, a news-search engine. Isolating the most important mainstream financial news services (WSJ, FT, et al), we searched the phrase “Barbarians at the” by year. The results, graphically represented below, show a mid-2000s decline in the use of the reference – perhaps indicative of a lack of faith in private equity's future. A 2001 headline from The Deal was a harbinger of this skepticism – “Mediocrity at the Gates”, an article about KKR's then-sagging IRRs.
Well, private equity, and KKR, are back, bigger than ever, and bursting through big-buyout gates all over the world. And journalists can't get enough of the “Barbarian” word-plays, as well as historic references to the RJR Nabisco story. By August 15 this year, 51 articles mentioning “barbarians at the” had appeared in the major newspapers and wire services. This shows a hyper-awareness of the increased role private equity is playing in the world economy, and the major role KKR is playing in private equity. It also spells good news for Bryan Burrough and John Helyar, the book's authors.
As for private equity's image, “barbarians” might not be how most GPs would like to be perceived, but at least it feels good to be back at the gates.
“The threat of buyouts and the relatively low cost of capital may be encouraging other companies to re-leverage. If these patterns continued, they would increase the vulnerability of global corporate balance sheets to a change in the future financial environment.”.
Bank of England, July 2006
“Part of this is scapegoating, and part of it involved real issues. I believe we live in a time that is anti-growth. We are absolutely moving away from [the use of stock options]. I think it will hurt.”
Roger McNamee, co-founder of Elevation Partners, on the repercussions of America's stock option backdating scandal. Quoted in the Financial Times.
“Experienced secondary fund managers should be expected to improve their ways of doing business and hence deliver even better results going forward: source deals more creatively, price assets more accurately, employ smarter structuring and achieve greater alignment of interest with vendors.”
Jeremy Coller, Coller Capital, on performance expectations for secondary funds. See p. 45 onwards.
“Our investment thesis is not based on any kind of cost-cutting.”
Michael Michelson, a partner at KKR, on his firm's game plan for HCA, the world's largest LBO at $33 billion. See p. 26