Two Wise Men with a Plan

When we started working on the president's commission, we figured we were doing it for our grandkids, but as we worked on it more, it became clear we weren't doing it for our grandkids, or even our kids, but for ourselves," said Erskine Bowles, the former White House chief of staff for President Bill Clinton, who is also known to dealmakers as the founder of boutique investment bank Bowles Hollowell Conner & Co. (BHC), in a keynote address at ACG InterGrowth 2013 in Orlando, Fla. "We came to understand that if we can't get politicians on the right and the left to pull together rather than apart, we'll face the most predictable economic crisis in history," continued Bowles. "It's also the most avoidable economic crisis in history. But we've got to act." The keynote was co-delivered by former Sen. Alan Simpson (R-Wyo.). Together, the so-called "two wise men with a plan" co-chair the National Commission on Fiscal Responsibility and Reform, a bipartisan commission that issued a plan two years ago for trimming the nation's deficit by $4 trillion over the following decade.

On the eve of InterGrowth, Simpson and Bowles made a fresh proposal to reduce the deficit by $2.5 trillion through 2023, "replacing the immediate, mindless cuts of the sequester with smarter, more gradual deficit reduction that would avoid disrupting a fragile economic recovery while putting the debt on a clear downward path relative to the economy over the next 10 years and beyond," they wrote in an op-ed piece published in the Washington Post. The bipartisan approach, they say, "would achieve this deficit reduction while respecting the principles and priorities of both parties." (Watch the video below.)

Their talk at InterGrowth resonated with many members of the audience, whose travel to the conference had been lengthened due to flight delays at major East Coast airports, as sequester-related furloughs of air traffic controllers began. Bowles and Simpson were inconvenienced by the furloughs, too. Their flight from another part of Florida to Orlando was delayed so significantly that they switched gears and drove to the conference instead.

In the InterGrowth keynote, Bowles outlined five major problems facing the nation:

*Health Care: "We spend twice as much as any other developed country on health care"

*Defense: "We spend more than the next 17 countries combined"

*Tax Code: It's overly complicated

*Social Security: "It will be $900 billion cash-negative over the next 10 years"

*Interest on the debt

"What we want you to do is put pressure on Congress to deal with this," Bowles urged listeners.

What are the consequences if Congress does not act? "Every day we borrow $3.6 billion, and for every buck we spend, we borrow 40 cents," said Simpson in a video interview with Mergers & Acquisitions, shot a few moments after the speech. "The people who have loaned the money to us will say, 'You're addicted to debt, and you have a dysfunctional Congress. We want more money for our money.' And when they ask for that, inflation will kick in, and interest rates will go up, and the guy that gets hit right in the chops is the little guy."

In the midst of the doom and gloom of their remarks, Bowles and Simpson each displayed considerable charm and wit. "When I entered the hall a few moments ago, a gentleman asked me a question that flummoxed me, but I want to answer it now," Simpson deadpanned. "Yes, I did sleep in this suit!"

At one point when discussing social security and Medicare, Bowles quipped, "We don't want to throw Granny off the cliff. Hell, we are Granny!"

For Bowles, InterGrowth provided more than just a platform to promote the latest version of the Simpson-Bowles plan: it represented something of a homecoming. In a video interview with Mergers & Acquisitions, he discussed the early days of BHC, which he co-founded in 1975, when he began working on the initial deals of Kohlberg Kravis Roberts & Co. (NYSE: KKR) and other private equity firms that have since become household names.

"When I first tried to leave Morgan Stanley and move to Charlotte to start a firm to focus on the middle market, the people in New York thought I was crazy," recalls Bowles. "Why would I leave such a great firm to focus on what they called 'dinky deals?' I simply thought there was a great, big market out there and believed if I could assemble a group of people that had a high degree of experience and expertise in areas like law, accounting, taxation and corporate finance, and apply it to the small and medium-sized companies in this country, that we could fill a void. When those companies went to Wall Street, they got assigned a junior, inexperienced person to handle the transaction."

BHC went on to become a highly successful boutique investment bank that was acquired by First Union in 1998, and then Wachovia bought First Union in 2001. Many of today's best-known middle-market investment banks were spawned by BHC, including Harris Williams & Co. (For more, see "Living Legacy" in the February issue of Mergers & Acquisitions.)

Point your browser to http://themiddlemarket.com/video to watch our video interviews with Bowles and Simpson and other dealmakers from InterGrowth, including ACG chairman Charles Morton and CEO Gary LaBranche, the Riverside Co.'s Pam Hendrickson; Huron Capital Partners' Gretchen Perkins and Holland & Knight LLP's Bradley Van Buren.