The Buyout of America
A wise man once wrote: “You take the good, you take the bad, you take them both and there you have the facts of life.” Ok, it was Alan Thicke, but the message of balance served Jo and Tootie well for nine years. And it’s one that I wish NY Post reporter Josh Kosman had kept in mind when writing The Buyout of America, which hits book shelves next month. Kosman’s basic thesis is that leveraged buyouts are bad news, and that their practitioners either don’t care or have deluded themselves otherwise. Moreover, he believes that around half of all PE-backed companies will collapse between now and 2015, triggering another economic meltdown and adding two million folks to the unemployment rolls. Pretty cataclysmic stuff. To be clear, I don’t dismiss any of the above out of hand. After all, we heard some of these same warnings two and three years ago about collateralized mortgage obligations, and look where ignoring that got us. We keep hearing big-name PE execs talk about how most of their portfolio debt doesn’t come due until at least 2013, as if 2013 is some vortex into which loan obligations will somehow disappear. The bill always comes due, and the only thing that will prevent certain mega-LBOs from failing will be a bailout by their existing sponsors. Moreover, I fully support Kosman’s distain for PE firms that charge various fees to their portfolio companies’ balance sheets, particularly transaction fees and monitoring fees (no matter the particular GP/LP split). A private equity firm simply should not be able to preemptively profit on a company it helps bankrupt. Just because you can, doesn’t mean you should.
