The $7 Billion Mouse ... er ... Man

I am sure by now that most of you have read The Wall Street Journal's puff piece on Steve Schwarzman this morning. I wonder if you, like me, were struck by the rather pervasive attention writers Henny Sender and Monica Langley paid throughout the article to the subject's—how shall I put this delicately—untallness. There it is, staring at you, right from the first sentence:

Stephen Schwarzman, who stands 5-foot-6, describes himself as a scrappy "little man" who finds ways to win.

It reminds me of the classic epithet formulated by the late, lamented 1990s society rag Spy magazine to describe Mr. Schwarzman's peer and apparent nemesis in private equity, Henry Kravis: "tiny 80s relic."

Mr. Kravis is somewhat optimistically described in a few places on the internet as 5-foot-7, which would give him primacy over the Blackstone poobah, if true. Having met the man in person some years ago, however, your Dutiful Correspondent must reluctantly disagree and suggest that Mr. Kravis only cracks 5-foot-4 on those rare days when he wears paratrooper boots with lifts in them. For those of you who doubt me—and Mr. Kravis's publicists—I would point you to the following undoctored photograph on a website profiling some of Mr. Kravis's achievements. (As a point of reference, Kareem Abdul Jabbar's height is well documented at 7-foot-2.)

In any event, Mr. Schwarzman seems quite proud of his many achievements as an altitudinally-challenged go-getter:

Mr. Schwarzman says he was president of his junior-high and high-school classes; that he was on the podium on Class Day at Yale [as an aside, what the hell does that mean?]; and that he was president of the prestigious Century Club at Harvard Business School. "I'm a consistent little person," he says of his leadership abilities.

Consistent, and aggressive, too:

"I didn't get to be successful by letting people hurt Blackstone or me," he said. "I have no first-strike capability. I never choose to go into battle first. But I won't back down."

He certainly seems to be using this profile to take a few potshots at a rival or rivals unnamed.

Mr. Schwarzman says he would never go after a company just to thwart a rival firm, and that he isn't a "marauding, low-class, low-brow inflictor of random damage."

Ouch, babe. Where was that missile aimed, 9 West 57th Street? Perhaps Mr. Schwarzman was so willing to let the WSJ emphasize his lack of physical stature because he knew it would get under the skin of his rival New York Society Grandee and tycoon, Mr. Kravis, who apparently suffers in comparison.

You 6-footers reading this should not smirk, however (unless you, too, are billionaires). There is a long history of short, aggressive men cleaning the floor with their taller peers, once they graduate from high school and gain legal protection from assault and battery. Women learn this too as part of their post-high school education in life, and take it to heart. As Mrs. Dealmaker has often said, "Short men just work harder." (And she wasn't talking about yardwork, either.) That, plus the widespread tendency of short men to turn their energy and aggression to accumulating lots of money—and the attendant juicy blondes—leads me to believe that being short may be a selective adaptation in our post-Darwinian world. It could explain current statistics which show that average height in the US is shrinking, as filthy rich shrimpos procreate relentlessly with the hot babes who marry them for their money.

Don't get in their way, either. History is littered with the pathetic, taller victims of aggressive short males. In fact, this may be a cross-species phenomenon, as well, as the following profile of the famed Mighty Mouse can attest. Some of it reads just like the back story that the WSJ editors chose to omit from the article on Mr. Schwarzman.

The early, operatic Mighty Mouse cartoons often portrayed Mighty Mouse as a ruthless fighter. He would dole out a considerable amount of punishment, subduing the cats to the point of giving up their evil plan and running away. Mighty Mouse would then chase down the escaping cats, and continue beating them mercilessly, usually hurling or punching them miles away to finish the fight. A favorite move [was] to sudden[ly] fly up to just under a much larger opponent's chin and [throw] a blinding flurry of punches that [left] the enemy reeling.

... [Mighty Mouse's] arch-enemy [was] an evil villain cat named Oil Can Harry ...

Hmmm. "Oil Can Harry" sounds suspiciously like Henry Kravis to me.

But despair not, Dear Readers, if you are among the pitifully unshort: you can take comfort that Mr. Schwarzman puts his pants on one leg at a time. (At least, I think he does. You never know with these diminutive squillionaires. He may have purchased a special device which enables his pants valet to put them on both legs at once. I bet Henry Kravis doesn't have one of those.)

Short or not, billionaire or not, one-pant-leg-at-a-time or not, Mr. Schwarzman is still subject to most of the same economic and physical laws as the rest of us. And he has chosen, wisely or not, to expose himself and his firm to one of the great roulette wheels of modern society, the market for initial public offerings. For every moonshot like Fortress, Google, or Netscape, there are dozens of busted deals and failed offerings that slink back to ignominy and obscurity, often for no better reason than the IPO window has decided to shut of its own accord. I would not bet against the success of Mr. Schwarzman and his IPO, but hey, a tall guy can hope, can't he?

But, Mousie, thou art no thy lane,
In proving foresight may be vain;
The best-laid schemes o' mice an 'men
Gang aft agley,
An'lea'e us nought but grief an' pain,
For promis'd joy!

Still thou art blest, compar'd wi' me
The present only toucheth thee:
But, Och! I backward cast my e'e.
On prospects drear!
An' forward, tho' I canna see,
I guess an' fear!

— Robert Burns, "To A Mouse ..."

Mark your calendars: Blackstone's IPO is scheduled for the week of June 25th.

© 2007 The Epicurean Dealmaker. All rights reserved.

Waiting for the Barbarians

Why this sudden restlessness, this confusion?
(How serious people's faces have become.)
Why are the streets and squares emptying so rapidly,
everyone going home so lost in thought?

Because night has fallen and the barbarians have not come.
And some who have just returned from the border say
there are no barbarians any longer.

And now, what's going to happen to us without barbarians?
They were, those people, a kind of solution.

— from C.P. Cavafy, "Waiting for the Barbarians"

© 2007 The Epicurean Dealmaker. All rights reserved.

Shades of Pemberley

It is a truth universally acknowledged, that a single man in possession of a good fortune, must be in want of a wife.

— Jane Austen, Pride and Prejudice

Were I ever to receive a damaging blow to the temporal lobes which compelled me to devise a curriculum for first year MBA students, one of the chief works I would have the eager young beavers in my charge read and comprehend—in addition to the usual dry and dusty tomes on CAPM, merger accounting, and operations research—would be Pride and Prejudice. Like many of Jane Austen's novels, I have long been of the belief that P&P is severely underrated as a how-to manual for success in both my chosen vocation, investment banking, and the broader socioeconomic sphere in which I and many of my brethren move, New York Society.

Like New York Society today, the social sphere which Miss Austen chronicled was riddled through and through by one aim, one topic of conversation, and one obsession: Money, and how to get it. Of course, the props and trappings of money during the Georgian period in England were different from those in 21st century Gotham, as were the specific ways in which men and women pursued it. But I ask you: how much real difference is there between Whites and the University Club; between "covering skreens" and serving on the Spring Benefit Committee at The Spence School? My answer? Not much.

Of course, anyone with a soul in England during Jane Austen's time was as conflicted about this monomaniacal focus on filthy lucre as are the current denizens of New York City who retain a scrap of human decency (all 36 of them). Nevertheless, practicality—then as now—dictated a certain resigned acceptance of the rules of the game. In any event, I defy you to find a more pithy and perceptive analysis of the traumas and tribulations of post-merger integration than Charlotte Lucas' speech to Elizabeth Bennet:

"Well," said Charlotte, "I wish Jane success with all my heart; and if she were married to him to-morrow, I should think she has as good a chance of happiness as if she were to be studying his character for a twelvemonth. Happiness in marriage is entirely a matter of chance. If the dispositions of the parties are ever so well known to each other or ever so similar beforehand, it does not advance their felicity in the least. They always continue to grow sufficiently unlike afterwards to have their share of vexation; and it is better to know as little as possible of the defects of the person with whom you are to pass your life."

And what are investment bankers but middlemen writ large (or not so large, depending on your perspective). We are the moneychangers in the Temple, the indispensable yet despicable greasers of commerce.

For proof of both the contempt in which many market participants hold investment bankers and our undeniable indispensability, I refer you to an early post from my reluctant inamorata at Going Private, Equity Private:

See, [private equity firms] hate investment bankers. Investment bankers sell their services by convincing a firm's owners that their firm is worth "X" and then, right or wrong, blocking even the hint of any deal that makes their wild ass guess of "X" look silly. It is like hiring a real estate agent who promises to sell your $900,000 house for $1,000,000 and then refuses to even inform you about the 6 buyers offering $925,000. Well, ok. That's not really fair. Really we dislike them because Investment bankers mean negotiations and auctions. Negotiations and auctions mean paying fair prices for what we buy. We hate paying fair prices for what we buy. We love free markets. Except auctions. Then we want illiquid markets.

Later, EP admits, grudgingly, that i-bankers can occasionally be useful, as well:

Ok, I know I said we hate investment bankers. Well, sometimes we don't hate investment bankers. "Sometimes" is when they call us trying to avoid sounding desperate because the deal they had thought was all sewn up to sell a company they were trying to dump fell through at the last minute. Their auction broke. Maybe we had bid on it but [came] in second, or third. Or not at all. Suddenly we love investment bankers. Illiquid market again.

Within the current capitalist ecosystem, investment bankers fulfill a critical intermediary role. We grease the skids, we oil the palms, we ease the path of transactions both high and low that make the great Schumpeterian wheel go around. We are the midwives of Creative Destruction, and we are as despicable, as ineluctable, and as indispensable to our current system of financial capitalism as Johnnie Cochran was to criminal defense litigation. We will never be as cute and cuddly as panda bears or meerkats, but try to eliminate us and your teetering edifice will collapse.

You see, at the end of the day, the character in Pride and Prejudice investment bankers most closely resemble is Mrs. Bennet, the mother of the five nubile Bennet daughters, whose chief and apparently sole aim in life is to have each of her impecunious daughters married off advantageously, no matter what arguments may exist for or against any particular matrimonial union. She is not very bright (although quite crafty), and she has absolutely no qualms about making a complete and utter fool of herself and her family in pursuit of a deal.

And, when both Jane and Elizabeth Bennet are married to rich and handsome men whom they happen—by completely and utterly irrelevant chance—to love, Mrs. Bennet takes full and singular credit for the happy matches.

Now there is a woman I would hire for my firm.

© 2007 The Epicurean Dealmaker. All rights reserved.

Pattern Recognition

I had nothing better to do this morning in between client meetings in Beantown, so I decided to trot on over to the ACG Boston Growth conference and listen in on a panel session on the state of the M&A market. (I registered as Ben Bernanke, just to see if anyone noticed. They didn't.)

I usually try to avoid such feel-good gabfests, since they uniformly sound like variations on the old Buster Poindexter song, "Hot! Hot! Hot!," but I thought this one might offer more variation than normal, since the focus of the conference and the panel was the middle market. I was wrong.

The panel was emceed by the redoutable and charming Jay Jester (I kid you not) of private equity shop Audax Group and consisted of an investment banker, a lawyer, a capital provider, and an accountant. (I am reminded of the joke about the Arab, the Jew, and the Ukranian who walk into a bikini waxing emporium, but my lawyers have warned me I cannot tell such jokes to a mixed audience such as yourselves. Sorry.)

Anyway, a great deal of call and response ensued between Jay and the panelists on the state of said market, and whether or not one should expect a great clanging and crashing sound anytime soon as the wheels come off the proverbial bus. I was unsurprised to learn that everyone remains cautiously upbeat—code words for "Who the hell knows? I am burying acorns as fast as I can before the first snow comes." And, while everyone could see signs of stresses and strain, particularly in the leveraged finance market, no-one could identify the likely catalyst for a true market shutdown.

Anodyne stuff, really, and definitely not worth me giving up reading Maxim in my hotel room while I waited for my second sell-side pitch meeting of the day. Just as I was beginning to compose a vicious e-mail to my assistant decrying her failure to pack a copy of the lads' mag in my briefcase for the trip, however, my attention was yanked back to the presentation. Jay flashed a series of charts up on the screen which compared and contrasted the annual M&A volumes in the mid market between the last M&A cycle and this one.

Now, due to the clever slight of hand he used in applying different vertical scales to the different time series, the patterns matched up quite nicely, and an unsuspecting member of the audience could draw the conclusion that, based on prior experience, we are a good three to four years away from the end of the current M&A boom. In fact, Jay then asked each of the panelists where they thought we were in the cycle, based on the last cycle's pattern: 1996, 1997, 1998, or 1999. Most of them chose 1996, which I found amusing since it implies we have a good 40% upside in deal volume from last year before it levels off for three years. Only the investment banker demurred and chose 1997 or 1998—still good, but by implication closer to the end of the cycle and less susceptible to growth in deal volume.

Inattentive readers of this blog and members of the general public might be surprised that a financial prostitute an investment banker failed to abjectly whine and grovel at the feet of a paying client and displayed even the slightest hint of behavior at odds with rampant optimism. Perhaps his relative caution was due to the fact that investment bankers always urge their clients to do a deal RIGHT NOW, before the window closes, as Jay alleged. Or perhaps it could be attributed to the banker's 20 years of experience, and having lived through a couple of real M&A cycles. I prefer to think the answer lies in the fact that of everyone on the panel, the investment banker was the only one whose business does not rely for 70% of its revenues and 120% of its profits on the current overheated deal frenzy of private equity groups.

In any event, I am sure the investment banker will soon send a Ukranian prostitute or a case of champagne to Audax to atone for his presumption, so all will be well.

In the meantime, the question of if and when the current M&A boom will stop remains unanswered, at least to my satisfaction, and probably remains unanswerable to us poor souls caught in linear time. There are a few suggestive indicators out there, like Ray Soifer's Harvard MBA index, which bode ill for the general equity market and, by extension, the M&A market. However, the optimists among us can always point to contrary indicators that show all is for the best in this best of all possible worlds.

Barring an unequivocal sign or an ineluctable argument, though, I prefer to rely on my gut. And I am telling you, Dear Readers, something just doesn't feel right.


© 2007 The Epicurean Dealmaker. All rights reserved.

The Answer

"Forty-two!" yelled Loonquawl. "Is that all you've got to show for seven and a half million years' work?"

"I checked it very thoroughly," said the computer, "and that quite definitely is the answer. I think the problem, to be quite honest with you, is that you've never actually known what the question is."

"But it was the Great Question! The Ultimate Question of Life, the Universe and Everything!" howled Loonquawl.

"Yes," said Deep Thought with the air of one who suffers fools gladly, "but what actually is it?"

A slow stupefied silence crept over the men as they stared at the computer and then at each other.

"Well, you know, it's just Everything ... Everything ..." offered Phouchg weakly.

"Exactly!" said Deep Thought. "So once you do know what the question actually is, you'll know what the answer means."

— Douglas Adams, The Hitchhiker's Guide to the Galaxy

Your Dedicated Correspondent in all things M&A-able is off this weekend to his college reunion somewhere north of the fortieth parallel. For those of you who are not familiar with such quaint colonial rituals, said college reunion involves the ingestion of copious amounts of flat beer and crappy finger foods coupled with the expulsion of vast quantities of hot air more or less connected to bringing friends, acquaintances, and hey-didn't-we-throw-up-together-on-the-floor-of-[location blocked]-in-[year blocked]-type strangers up to date with the particulars of one's life since graduation. Yes, it really is that ugly.

Anyway, I realize that many of you Dear Readers have come to rely upon me as the font of all wisdom and a reliable source of answers to the knotty questions of life, the universe, and everything, and I don't want to leave you hanging over a long summer weekend. Since I expect to be too hung over to bother cracking the blog editor this weekend, I have decided to leave you with a couple of nuggets from one of my other favorite Dead White Philosophers, Douglas Adams, to tide you over.

The first, of course, is at the top of this post. It should satisfy most of you. The second closes this entry, and should be salutary for those among you who think the first has indeed answered your questions.

There is a theory which states that if ever anyone discovers exactly what the Universe is for and why it is here, it will instantly disappear and be replaced by something more bizarrely inexplicable.

There is another theory which states that this has already happened.

— Douglas Adams

Potent stuff. Use it responsibly.

© 2007 The Epicurean Dealmaker. All rights reserved.