MacFadyen: Frolf Anyone?
November 17, 2009
2009 was supposed to be "the year of the strategic." That's what everybody told me going into 2009 and that was my first response whenever I was asked. It all made sense, but that was assuming that it had to be the year of something. One could argue, though, that 2009 has more closely resembled the Summer of George, which Seinfeld fans will remember consisted of frolf, mid-morning naps and growing a mustache.
But the slow deal market is not like the hockey strike that in 2004 shut down the sport and led to widespread disinterest. It will return, and I'm being told that next year, all of those old promises for dealflow will start to materialize. Distressed activity will gain further momentum; family owners -- another year removed from bubble-era valuations -- will be content to sell even at relatively modest multiples; and strategics, stabilized but in search of top-line growth, will again try to find it through M&A.
Of course, just like 2009, there are some unknowns that will threaten to rewrite the script.
The state of the dollar is probably what scares people most in the deal community. I'm currently putting together the 2010 forecast for the January issue of the magazine. One banker I was speaking to called it "the big ticking time bomb," saying it was uncertain enough that the dual threat of higher interest rates and inflation are scaring off overseas buyers. That kind of economic uncertainty wouldn't bode well for domestic activity either.
Another worry is the exposure to commercial real estate, which could have a similar impact on the credit markets that the residential space had when it collapsed.
And not to be overshadowed, all deal pros are also looking out to the refi cliff in 2012 and 2013.
By large, however, the pros I have spoken to so far for the story would qualify as optimistic. They don't anticipate a huge rebound necessarily, but they are expecting that next year will be better than 2009.
When I press them for theme, they're largely predicting that it will again be the year of the strategic. For those in PE, apparently there's still frolf and mustaches.
I've seen a lot of commentary on the history of insider trading and private equity recently, yet no mention of the alleged abuse that took place during the 1980s and earlier. While it's before my time, I always considered this era to be the heyday of insider activity.
Michael Milken, for instance, never pled guilty to insider trading, but it was Kohlberg Kravis Roberts' buyout of Storer Broadcasting, and the trading activity around that deal, that drew a lot of interest from regulators.
Meanwhile, Leonard Green, who founded the eponymous private equity firm, had insider trading allegations thrown at him during the divorce proceedings involving his third wife. According to
the Los Angeles Times, Green claimed in a defamation suit that the accusations played a role in his departure from the firm. The divorce also uncovered a 1977 Securities and Exchange Commission settlement in which Green repaid $3,613 in profits from a trade the SEC said was based on inside information. In his settlement, Green did not admit to any wrongdoing.
M&A gets blamed for a lot of things. Bankruptcies, job cuts, you name it. I would hate to see people blame an acquisition for the end of an institution. Folio is warning readers already that despite assurances from Playboy's CEO, there is no guarantee that a new buyer will want to keep the publication in print.
Is a centerfold even a centerfold without a print magazine? These are the questions modern philosophers are being forced to ponder.
I rarely do a double take when I read a press release, but I was a bit surprised when I saw that Charlie Eitel would open up a new shop offering advisory services so soon.
The New York Times, in October, profiled Eitel, calling into question his run as chief executive of mattress maker Simmons Bedding Co. In November, Simmons finally filed for bankruptcy. In between, Eitel saw fit to launch a new firm -- with his name on the door -- that advises other companies on transitions, transactions and crisis management.
Let's review what the Times had to say:
... Many former Simmons executives said that he ruled from afar — that he rarely appeared at the Atlanta headquarters. Instead, he spent much of his time in Naples, Fla., where he and his wife built an opulent home with a 1,000-bottle wine room and a multitier cascading pool featuring glass mosaic tiles. The home was listed this spring for $16 million.
Mr. Eitel also spent a great deal of time wooing clients from his 80-foot yacht, Eitel Time. With his boat, which had 11 televisions, a hot tub on the flybridge and a sunken granite-topped bar in the salon, Mr. Eitel took customers out for cocktail cruises and junkets to Martha’s Vineyard.
Drinks were always frosty, thanks to the on-board ice machine, which could churn out 600 pounds of ice a day.
Eitel, however, hasn't really noticed the fallout. After stories in trade magazine Furniture Today sparked commenter outrage, Eitel reportedly told the publication that he does not read the comments.
I guess when you've got 11 TVs in your yacht, you've got better things to do than scan Furniture Today's website for comments (or themiddlemarket.com, for that matter). Then again, one could argue that it doesn't hurt to get a read on public perception ahead of a launch
Clusterstock has been running a recurring feature listing 15 questions that Google has asked its applicants and then providing the answers. I was sufficiently humbled after three. They linked to a Seattle interview coach who takes it a step further on his blog, listing 140 questions that Google has asked prospects in interviews.
One of those questions may seem to hint at the company's M&A strategy.
"Suppose we have N companies, and we want to eventually merge them into one big company. How many ways are there to merge?"
I'm sure they're looking to test one's math skills, but I'd bet most techies who remember Joel Klein's rein at the DOJ would argue that this was a trick question. At least that would be my answer, since I'm sure I'd screw up the math.
For those looking for the actual answer, the Awl this past September pointed readers to a subway-map rendering of Google's M&A activity for the past nine years. Not sure it makes it any easier to understand, but it's one of the more interesting ways to draw a deal strategy.
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