Interpreting Black Friday
November 24, 2009
I realize 97% of the population lives for it, but I'd actually prefer to stay home and scan the Edgar database than deal with the animals out losing their minds on Black Friday.
Courtesy of the Huffington Post, here are some of the sales shoppers will be greeted with this year:
Walmart has Blu-Ray Disc players for $148, while Target is selling a 32" Westinghouse TV for $246. Sears went with a sale on a camera, Staples has a Dell laptop deal, and Kmart shoppers will get 75% off of Diamond Solitaire Earrings -- there is no better way to say "let's keep dating, at least until the summer."
My favorite offer came from Toys "R" Us, which is smartly applying a $15 discount on any PayPal purchase. They're basically paying consumers $15 to stay the hell away.
Most of our audience will probably watch the carnage from afar. The same stories will flow into the local news affiliates, with people camping out in Best Buy parking lots and pregnant women getting trampled in the race for discounted DVDs. The madness will be taken as a sign that the consumer is healthy. We'll just ignore the irony for the sake of optimism.
For the latest issue of the magazine, I spoke with a general partner who claimed that the focus on IRR by limited partners was to blame for many of the instances of abuse that have been targeted by critics. Dividend recaps, excessive leverage, quick flips, et cetera, are all the result of sponsors trying to return the most amount of money as fast as possible, as efforts to actually build businesses take a back seat. Cash-on-cash returns, alternatively, tend to promote a longer term focus, which translates into better businesses post exit. At least that's the theory.
As if on cue, Oliver Gottschalg's latest research, published initially by Dow Jones, creates a new metric that encapsulates both IRR and cash-only return multiples, and he used his new measure to formulate a top 10 list. What's interesting is that the firms one might expect to make up the top 10 -- namely the megafunds that dominate the bulk of the headlines -- are nowhere to be found.
Leonard Green & Partners topped the ranking, while Linsalata Capital Partners, Berkshire Partners and Brockway Moran & Partners were among the other US firms to round out the top 10. It certainly makes sense that mid-market firms would be better builders.
With good reason, investors continue to target China. However, a recent story on Al Jazeera, via Paul Kedrosky's "Infectious Greed" blog, pokes some holes in China's growth. Ordos City, part of Inner Mongolia, was built on the back of government aid, yet has failed to actually attract any residents. At the end of the news clip, there is a traffic cop stationed in the middle of a huge intersection "directing" traffic that doesn't even exist.
Whenever the topic of conversation gravitates to China, people are usually quick to trot out those 8% GDP figures. It sounds especially impressive juxtaposed against the recession the US is just now climbing out of.
Deal pros like to talk about the quality of earnings, but rarely do you hear people question the quality of China's growth.
Stable earnings and barriers to entry are generally the first things sponsors look for before making an investment. Maybe that explains why so many have targeted legalized credit card scams for investment opportunities.
The hustle accesses victims' credit cards through a reputable site, like Priceline or Fandango, and then each month charges the card a small-enough sum to avoid any attention. Webloyalty, for instance, may charge $10 a month, listing a vendor such as Reservation Rewards on the bill.
As FT Alphaville identifies, regulators have begun looking into the practice. Their interest, apparently follows, private equity, which has been active in the "sector" for years. General Atlantic Partners, for instance, backs the aforementioned Webloyalty.
I'm curious how Webloyalty CEO Rick Fernandes explained the company's "Post Transaction Revenue Program" to the investors in the original meeting. And I'm also curious how the deal team would have reacted had Fernandes just blurted out that it's legalized theft. I'm picturing one of those intricately choreographed handshakes most professional baseball players have mastered.
Speaking of reputations, Backbay Communications recently listed its Sweet 16 of the top brands in private equity. The list was part of a larger report on the power of brand as it relates to deal sourcing and fundraising.
Among the mid-market firms represented were Audax Group, Berkshire Partners, The Riverside Co., Summit Partners, and TA Associates. The large-market, meanwhile, saw 3i Group, Apollo Management, Bain Capital, Blackstone, Goldman Sachs Capital Partners, KKR, TPG and Warburg Pincus represented.
Some may claim East Coast bias, as 10 of the 16 call either New York or Boston home. Just eyeballing the list, however, it's clear that capital under management goes a long way. Anyone who recalls the Blackstone and KKR fundraising chase throughout the bubble knows how much value those two place on being "the biggest."
For the middle market names, however, the firms listed seem to be based more on performance and overall level of activity.
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