Report: Hell hole regularly avoided at all costs still being avoided this week. Read more »

If you’re Blackstone or KKR, are you on balance pleased or not pleased that Bain Capital’s favorite son is running for president? On the one hand, millions more people now think that they know what “private equity” is – and that they don’t like it – than did a year ago, and that loosely coagulated hostility has led to attempts to ban carried interest and dividend recaps and management fee conversions and the Cayman Islands. On the other hand, when a lawsuit accuses the entire private equity industry of antitrust violations and rampant corruption, now you get headlines like “Equity Firms Like Bain Are Depicted as Colluding,” and so I guess KKR employees can tell the folks back home “we are not an equity firm like Bain.” If Bain is a metonymy for Everything Bad in your industry, you can’t help but look good by comparison. Goldman Sachs once played this role for another industry, or still does, but at least Goldman is genuinely evil;1 boring Bostonian Bain is a weird choice to be the poster boy for badness. Did you know that Cerberus – an “equity firm like Bain” – is named after an actual hell hound?2

Anyway! Today’s unflattering depiction of Bain & ilk comes from a long-running class action lawsuit accusing those firms of price-fixing on a series of club LBOs in the go-go five-years-agos; the theory is that every private equity firm was in a conspiracy not to bid up each other’s deals, and to split the profits. The court recently released a heavily redacted complaint in that case that claims to draw on PE firms’ internal emails basically saying “let’s collude to drive down prices on all these deals.”

Presumably the redacted bits all say “let’s do lots of crimes!” but the unredacted bits tell a … pretty unsurprising story. Private equity firms wanted to buy companies cheap. They did so in part by not getting into tooth-and-nail bidding wars over any individual target, either by just not bidding for the target or by trying to club up with other bidders to split the deal. When this worked and PE Firm A got a deal cheap because PE Firm B passed on it, Firm A was like “yaaaay” and Firm B was like “you totally owe us, man,” which I feel like is in exact equipoise between “evidence of criminal antitrust collusion” and “just a bluffy/jokey thing you say when your competitor lands a deal.” Read more »

In addition to Galleon Group, one firm whose name has popped up a whole bunch as it relates to the Feds’ Insider Trading Fest(ivus) is McKinsey. Until they resigned, the consulting firm employed two partners, Rajat Gupta and Anil Kumar, who have both been accused to sharing material non-public information about various companies with their buddy Raj Rajaratnam (Kumar pleaded guilty last year and has been cooperating with the government, while Gupta, who was called out by the SEC in February, has vowed to fight thing thing to the death). Know who doesn’t have any senior executives on staff who may or may not have traded hot tips for money? Bain Chairwoman Orit Gadiesh can think of one. Read more »

  • 07 Jul 2008 at 10:42 AM
  • Buyouts

What The Weather Channel Deal Says About Buyout Economy

After a few months in the spring in which the credit crunch appeared to ease, the vise has tightened once again. Nothing illustrates this better than the financing for the acquisition of the Weather Channel.
NBC Universal, which is a subsidiary of General Electric, teamed up with buyout barrons Bain and Blackstone. But the deal still failed to attract traditional lenders. Much of the financing, in fact, was provided by firms affiliated with the buyers.
Three affiliated lenders provided the bulk of the financing for the $3.5 billion deal. Bain’s Sankaty Capital, Blackstone’s GSO Capital, and GE’s commercial finance arm reportedly provided over half the funding. The lead bank role was was held by Deutche Bank, which likely had to promise funding to score the mandate for the fee-heavy M&A side of the deal.
The situation is almost the reverse of the deals that were seen at the height of the buyout boom, when banks were falling over each other to provide loans for buyouts and even going so far as making equity contributions to deals. Now it seems the lenders don’t even want to lend, so the buyers are having to fund the deals largely on their own.