Frank Bisignano isn’t coming right out and saying he’s sorry that his company hired all of those JPMCers right after he quit, but he is offering an olive branch wrapped with a novelty-sized check. Read more »
The antitrust lawsuit against all the big private equity firms, accusing them of colluding with each other to drive down prices on LBOs in the 2003-2007 boom, was always a bit of a puzzler. On the one hand, there were lots of emails between private equity firms that they’d probably like back, to the effect of “hey thanks for not bidding on my last deal, hope you enjoy my not bidding on your next deal!” On the other hand, the lawsuit was sort of a mess, full of hazy accusations, unsupported conspiracy claims, and the sort of unfalsifiable tin-hattery that sees occasional fierce bidding wars between private equity firms as just a cunning cover-up of their conspiracy not to bid against each other.
Plaintiffs persistent hesitance to narrow their claim to something cognizable and supported by the evidence has made this matter unnecessarily complex and nearly warranted its dismissal. Nevertheless, the Court shall allow the Plaintiffs to proceed solely on this more narrowly defined overarching conspiracy because the Plaintiffs included allegations that Defendants did not “jump” each other’s proprietary deals in the Fifth Amended Complaint and argued in response to the present motions that the evidence supported these allegations. Furthermore, the Court concludes that a more limited overarching conspiracy to refrain from “jumping” each other’s proprietary deals constitutes “a continuing agreement, understanding, and conspiracy in restraint of trade to allocate the market for and artificially fix, maintain, or stabilize prices of securities in club LBOs” ….
And so he ruled today on a summary judgment motion, getting rid of most of the crackpottery but letting the plaintiffs go forward on the claim that the private equity firms had an agreement not to jump each others’ deals after they’d already been signed. Read more »
Underwriting a stock or bond deal can be very difficult and work-intensive: you need to coordinate your t-shirts for the pitch, manage logistics ranging from prospectus writing to investor-lunch-sandwich-buying, and actually convince investors to buy whatever it is you’re selling. But it can also be very easy. The limit case of easy underwriting is:
- Your phone rings at noon on a Tuesday.
- You answer it.
- “Hi, it’s Company X. How’d you like us to write you a check for $100,000 in exchange for letting us put your name on the cover of a document?”
- “Sounds good,” you say.1
- “Great, there’s a diligence call at 4:15pm. We price at 4:30.”
I’ve always liked the purity of this business model: basically, someone writes you a check, and you deposit it,2 and that’s that; you never sully yourself by actually providing them any service. But what’s in it for the client: why write you a check for doing nothing?
The answer goes something like this:
- There are fixed-ish fees for underwriting services – 7% for IPOs, 3% for follow-on equity, 2-3% for high-yield, a sliding scale based on maturity for IG.
- If you want actual underwriting done – someone to write a prospectus, call investors, and market the deal – you gotta pay those fees.
- Unless you’re Facebook or something, you have to pay pretty much the full fees.
- But you don’t have to pay all of them to the bank or banks actually doing the underwriting.
- Generally you have to pay each active bank at least as much as you pay any other bank,3 but you can still hand over a decent chunk of the fees to lower-level passive bookrunners, co-lead managers, co-managers, and other fancy titles for “bank that receives check.”
- So you essentially have “free” soft money: you’re writing a $3mm check anyway for that $100mm deal, but you can allocate $1mm or so of it to anyone with a securities license.
- So you might as well hand that free money to banks who’ve been nice to you: banks who lend you money at below-market rates, say, or advisors who’ve done lots of free work on M&A ideas that have never happened.
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 »
Earlier today, KKR announced that former Morgan Stanley Chairman and CEO John Mack will be joining the private equity firm as a senior adviser, “supporting new investing activities and providing counsel to KKR portfolio companies.” Including the new gig, Mack is now working three jobs, the others being “part-time adviser” to Morgan Stanley and author (as previously noted, he’s working on a book). And while it’s nice to see him keeping busy, you know what these little diversions don’t leave a lot of time for? Manning up and going after his dream. Read more »