Overheard at 85 Broad Street

This is just sad. Fucking sad.

MD: You're being placed into the accelerated one-year analyst program.

Analyst: You mean I'm being fired?

MD: No, you're being placed into the new accelerated one-year analyst program and will be paid through August.

Analyst: I'm being fired.

MD: There will be nothing on your record indicating you were fired. It'll say you were in the one-year analyst program.

Analyst: I'm being fired.

Unless you are a sick bastard, firing people is no fun, even when they deserve it. It is double no-fun when you have to fire a colleague and friend simply because business has fallen into the shitter and your group/division/investment bank has to cut payroll in the face of reduced revenue prospects, like we face today. It is triple no-fun when that colleague is some bright-eyed youngster fresh out of college or business school who still has stars in his or her eyes about the industry and their formerly bright future within it.

That doesn't mean it doesn't happen in investment banking. I have seen it up close and personal. Sometimes there is even a good reason to fire perfectly competent, inexpensive junior bankers instead of expensive deadweight Managing Directors. (Less often than you might hope, in my experience, but that's politics for you.)

But if you're gonna do it, if you're gonna dash the hopes and prospects of some eager young lad or lass your firm (and maybe even you personally) just hired less than 12 months ago, have the cojones to do it right. Don't lie and dissemble. Don't dodge and weave with the truth, telling your young charge he or she has just been "promoted" to a one-year program when they were hired for two.

Be a man. Not a weak-kneed, lily-livered, unprincipled, ball-less, gutless, prevaricating, backstabbing, motherfucking pussy.

Tell them straight: I'm sorry, you're being fired because we have to reduce our costs in the face of declining business. It is no reflection on you, your talents, or your future prospects. It is simply a business decision we have decided to take. I am sure you will do well in your future career, and I wish you the best of luck.

Look them in the eye. Be honest (or as honest as the inevitable Human Resources weasel in the room will let you be). Shake their hand, if they offer it. And try to remember through your discomfort and embarrassment that it is them who is getting fired, not you. Like I said, be a man. Do the right thing.

That is the right way to do it. That is why I find this report leaking out of Goldman Sachs to be so despicable. Who the fuck do they think they're kidding? Not the analysts getting canned, surely. Not those analysts' potential future employers. And certainly not anyone on Wall Street or among their investors who has not suffered a frontal lobotomy recently.

There is no form of public humiliation excruciating enough, no corporal punishment which causes lasting enough damage to serve as adequate remedy for such low, cowardly, pusillanimous behavior as this. Whoever thought up this stupid, cowardly, insulting plan should be taken to the steps of the New York Stock Exchange, disemboweled, and hung on a stick to dry, along with the senior executives who approved it and the Managing Directors who executed it. Recently laid-off investment bankers below the rank of Vice President should be issued a blanket invitation to come throw rocks and piss on their desiccated remains. Wives and mistresses of the miscreants should have their Henri Bendel store charge cards confiscated and their heads shaved, like captured collaborators in WWII. Their children should be forced to attend state schools and work for the Peace Corps.

Readers are invited to mail other suggestions to the senior management at Goldman Sachs at their leisure.

I feel nauseated. It's almost enough to make me turn in my keys to the executive washroom.

P.S. — Helen, just in case you were wondering, this is a rant.

© 2008 The Epicurean Dealmaker. All rights reserved.

None Shall Pass

Arthur: "Now stand aside, worthy adversary."
Black Knight: "'Tis but a scratch."
Arthur: "A scratch? Your arm's off!"
Black Knight: "No it isn't!"
Arthur: "Well what's that then?" [pointing to the arm lying on the ground]
Black Knight: "I've had worse."
Arthur: "You liar!"
Black Knight: "Come on, you pansy!"

— Monty Python and the Holy Grail

I try to stay positive, Dear Readers, I really do.

While I have never detected in myself that raging strain of congenital optimism prevalent among so many of my confrères in the investment banking world, I do make determined efforts to remain chipper and upbeat with my various clients in the face of the current M&A market slowdown. Like a good little M&A banker, I tenderly hold their hands and reassure them that their faltering little pissant transaction is only a heartbeat away from a spectacular and satisfying conclusion worthy of the record books. Were I not already aware that maintaining such an attitude is simply good business practice for a hired gun strategic advisor, I would no doubt be swayed by the heavy penalties Ye Ancient and Hoary Guild of M&A Workers is wont to impose on its members who are not seen in public with relentlessly cheerful grins plastered on their well-groomed kissers at all times.

But here, nestled comfortably in the bosom of my Trusting and Nonjudgmental Readership, I feel safe in sharing some of my skepticism concerning what I consider to be the excessively optimistic outlooks for the M&A market which are periodically published in the mainstream media. (The reassuring cloak of anonymity helps.)

The latest salvo of happy talk from the land of Honah Lee with which I feel compelled to take issue comes to us courtesy of WSJ's Deal Journal, wherein Stephen Grocer and some pals from Ernst & Young's transaction advisory services group attempt to reassure anyone who will listen that things, really, are not so bad after all.

Yes, global deal volume is down 26% from last year. Yes, the credit markets continue to sputter and talk of recession abounds. Yet amid the doom and gloom, it should be pointed out that 2008 has actually been a pretty good year for deal making.

True a 26% drop is steep. But is it fair to compare 2008 to 2007? ...

Consider another comparison: Global deal volume this year is up 3% from the same period in 2006. And remember, 2006 was the biggest year in M&A history prior to 2007, with $3.93 trillion in M&A volume, according to Dealogic.

Okay, true: so far 2008 has not turned into the Slough of Despond like 2002–2003—yet—but the 2008 over 2006 year-to-date comparison becomes less compelling when one recalls that a great deal of 2006's then-record deal volume came in the fourth quarter, as the Great Deal Engine of 2007 began revving its motors in earnest:


Oops.

Furthermore, an unsuspecting reader who has forgotten his rose-colored glasses at home might read the nifty little quarterly deal volume chart above—and Mr. Grocer's own relation of successive 47% and 33% falls in deal volume in 2001 and 2002 from prior highs—with a great deal less equanimity than he does. One might even draw the conclusion that, based on recent historical patterns in the M&A market, we have a great deal further to fall from current levels than we have seen to date.

Nevertheless, I concede that past is not necessarily prologue in the M&A market. Perhaps declining volumes and declining confidence will not work hand in hand to foster drastically lower deal activity, as they have in the past. This time, maybe it really is different.

Mr. Grocer—or his E&Y sources, it is not really clear which—certainly seems to think so. He gives four reasons why volume declines from 2007 should ameliorate:

1) Deal making fell off the cliff in the second half of 2007. So at the very least 2008 will face easier month-over-month comparisons going forward.

Translation: I have excellent news, Mr. Rutherford. The gangrene advancing up your leg slowed dramatically once it reached your groin area.

2) Corporates and private equity buyers have gobs and gobs of lovely cash, which is simply burning holes in their respective pockets. Plus, strategics simply have to buy stuff. The Polynesian god of globalization says so.

Do you hear that, Steve Ballmer? Get off your ass and buy Yahoo!, you moron. It's globalization, and consolidation, and strategic imperatives, and stuff. Sheesh. You might also want to put in a bid for one of those shitty legacy airlines the Wall Street Journal has been flogging to everyone and sundry for the past 12 months. I'm sure there's a "globalization" angle there somewhere. I dunno: world travel?

2) (continued) Oh, and just you wait. Private equity has boatloads of simoleons they have to put to work, too. Boy oh boy, as soon as those pesky banks start lending money again and stop renegotiating higher interest rates and tighter covenants on existing bank facilities every time a healthy PE portfolio company wants to do an add-on acquisition, you're gonna see private equity bounce back, big time.

Uh-huh. Just you wait. Any day now.

3) It's true those damn sellers just haven't adjusted their expectations down the way they should have already. Stubborn bastards. Well, they'll collapse in despair soon, and everything will be rosy again.

There might be that little, tiny, baby problem that the only sellers who sell at low multiples are the ones who have to. These, by definition, comprise a much smaller number (read:lower deal volume) than those who sell willingly when the Seventh Fleet of drunken buyers pulls into port (viz., e.g., 2007). There is also that disturbing documented tendency of sellers to cling to higher value expectations in the face of a declining market much longer than efficient market theorists (and cheapskate buyers) would predict. Existing home sales, anyone?

Lastly, my favorite:

4) [The] M&A marketplace is increasingly global. Sovereign-wealth funds are ... prowling on the M&A front. Meanwhile, corporations from Brazil, Russia, India and China are looking to do deals. In the first 19 weeks of 2008, M&A volume reached $91 billion in Brazil, Russia, India and China, up from $78 billion a year earlier. Companies in those countries, like Vale, are looking beyond their borders. The Brazilian miner is raising $15 billion that it may deploy to do deals.

Woohoo! $15 billion. Look out baby!

Of course, at $91 billion year to date, annualized M&A volume from the BRIC countries would make up only 6.3% of 2006's global total. A pipsqueak is still a pipsqueak, no matter how fast he is growing.

Anyway, I guess I can't blame Mr. Grocer or Deal Journal for talking their book. After all, it must be pretty tiring to rehash the same old story every day about Jerry Yang, Carl Icahn, or Seth Tobias. I'm even more sympathetic toward the E&Y TAS guys. Christ, with the percentage of their business which depended on the private equity feeding frenzy—and which has vanished overnight—those guys must be scrambling to place positive M&A stories in every high school paper and church group newsletter they can, much less the WSJ. The Carlyle Group sure as shit isn't returning their calls.

Of course, optimism, determination, and a positive attitude are all admirable things. As I have stated in the past, the typical investment banker simply cannot survive without them. However, one must still guard against losing complete touch with reality, or reality might happen by with a really sharp sword and chop your limbs off one by one. There's no upside in being a looney.

© 2008 The Epicurean Dealmaker. All rights reserved.

Bubble Land

The medium is the message.

— Marshall McLuhan

Dear and Cultured Readers, I am thrilled to have this opportunity to share with you some happy news.

I am pleased to announce that today is a red letter day for Umberto Eco, semioticians, and cultural anthropologists everywhere. I have no doubt that entire university departments around the globe will look back on this week as the seminal period in academic scholarship's institutional understanding and exploitation of the Great Private Equity Wave of the mid-2000s. Many scholars I have spoken with this evening have shared with me their gossamer hopes that today has been revealed the Rosetta Stone which will allow them once and for all to decipher and contextualize the overarching socioeconomic context of the Second Gilded Age we now find ourselves within.

Of what ominous portent of Doom and Glory do I write, you timidly inquire? Why, of nothing less than the public release of The Blackstone Group's first annual report.

* * *

Now, I realize that there may be those among my Faithful Audience who turn—or have already turned—immediately to decode, denote, and comprehend the content of this portentous document for particular purposes of your own. Perhaps you wish to decipher the dense and incomprehensible financial statements in order to understand the relative success, failure, or deeply hidden business secrets of The Blackstone Group. Perhaps—unhappy thought—there are those among you who ignored this writer's previous advice and actually purchased units of the BX chimera with some vague and muddled sense of investment opportunity, and now seek to discover whether you have made a sensible decision or not. (Uh, that'd be not.) Or perhaps there are even those, friend and foe alike, who wish to decode the delphic utterances of the Grand Satrap himself, Mr. Steve Schwarzman, in his letter to unitholders in order to wrest their hidden meaning from the layers of homogenized corporate happy-speak in which he entombs them.

These are all noble and useful objectives, I grant you. Perhaps after I have taken care of the 548th item on my permanent to-do list (repaint the riding lawnmower at the Hamptons beach house teal) I will actually get around to doing a similar thing. But this is not whereof I speak.

No, I speak of the veritable cornucopia of signs and symbols virtually teeming off the pages of this gladsome artifact, signs and symbols which—to this correspondent's naive eye—literally swarm with meaning and portent in this, the Year of Our Lord 2008.

Portents

Now I freely admit that I am no professional semiotician, nor even a second-rate Baudrillardist from the University of Toulouse. I can assure you I have no idea what unfiltered Gauloises taste like. But you do not need to have a ratty beret, elbow pads worn shiny on your tweed jacket, or a blurry photo of Brigitte Bardot in your motheaten wallet to observe and note some interesting things about the BX report.

For example, what the fuck city are the photos of BX employees taken in? The document captions claim that most are posed on the plaza of BX headquarters, which is located on Park Avenue in the middle of midtown New York. But I, for one, can tell you that I have never seen the city as empty of all other humanity—especially in Midtown, during daylight hours—as the photos of Blackstone's employees and executives portray. It's almost as if Steve Schwarzman looked out the window on September 11th, after the terrorists vaporized the World Trade Center, and said, "Hey, guys! The streets are empy! Everybody outside quick, so we can take photos for the annual report!"

Of course, that is probably not what really happened. (At least I don't think so.) Instead, some psycho art designer with a lip tattoo and a tongue piercing probably had a digital photographer take separate photos of people and streetscapes, edit the surplus humanity out of the picture, and splice together the images into the eerily post-apocalyptic scenes scattered so gleefully through the document. I mean, honestly, it looks a like some weird mix of The Vampire Chronicles and 28 Days Later. If I were one of those employees, I'd file a workman's comp claim for mental trauma.

And notwithstanding the palpably creepy vibe this pseudo-naturalistic photographic treatment gives the whole document, it is completely at odds with the normal practice and objective of public corporations when they communicate with their shareholders through an annual report. In this day and age, public companies fight a constant battle in the arena of public opinion to be viewed as honest, trustworthy, and not entirely composed of rapacious, dastardly scumbags who would sell Osama Bin Laden a dirty bomb just to make next quarter's numbers. Accordingly, most companies make a sustained and concerted effort in their public communications—anchored by their glossy annual report—to persuade their shareholders and the interested public that they are authentic, and not shifty, lying bastards.

But when your annual report is riddled with "naturally posed" photographs of happy executives and worker bees which even a Kalahari Bushman would recognize as digitally altered composites, you tend to undermine whatever message of authenticity and respect for the truth you might have tried to communicate elsewhere.

It also tends to undermine the message Blackstone may have been trying to convey about its own humanity when the most lifelike figure in the entire report is the wax figure of Nicole Kidman at BX portfolio company Madame Tussauds.

A Brief Digression

[By the way, is it just me, or has anyone else noticed that Madame Tussauds' so-called likenesses of famous people are almost always no such thing? I mean, as someone who has marveled at the plastic arts of portrait sculpture and the ability of a good sculptor to capture the very essence of a sitter or personality—in addition to his or her actual likeness in three-dimensional space—I must say that I have always found the wax effigies in MT's emporia almost always exactly wrong in several important ways. The figure of Nicole Kidman pictured in the BX report, for example, is a quite nice (and slinky) portrayal of any number of generic undernourished, overambitious Hollywood starlet social climbers, but it bears almost no resemblance to the actual item. (I actually had to check the photo caption to see who this saucy sculpture was supposed to represent.)

What has consistently amazed me is that Madame Tussauds seems to have accomplished this not-very-close-but-definitely-no-cigar type of misrepresentation on almost all of the many hundreds of current and historical personages in its showrooms. Such consistency in missing the mark really must require a considerable amount of skill. I don't know—perhaps celebrities pay MT's to botch their portraits just so so the original cannot be confused with the otherwise indistinguishable wax reproduction in movie casting rooms, or maybe it is a clever ruse to put potential stalkers, paparazzi, and bill collectors off the scent. Unfortunately, this hypothesis does not explain why MT's portraits of Abraham Lincoln and Albert Einstein both have a similar uncanny resemblance to Billy Crystal.

Anyway, certain mysteries were not meant to be solved, but I thought I would share my confusion with you anyway.]

* * *

Second, what kind of self-image do these images of Blackstone's personnel convey? That they are so fucking powerful they use the streets of Manhattan for a conference room? That New York City itself is merely a vaguely fake-looking background to the important issues BX deals with every day? That BX functions in a surreal bubble devoid of all other human presence? That the Executive Committee likes to reenact scenes from Reservoir Dogs?

Third, what's with the black cover? A sort of reverse Beatles White Album? An evocation of the all-powerful monolith from 2001: A Space Odyssey? A sympathetic black armband for pathetic unitholders who have lost somewhere between 35 and 50% of their investment value in BX shares since the IPO? Or just a "We're so powerful and important we don't need to put anything on our annual report cover" fuck-you?

And last but not least—although I admit the connection to semiotics or symbolism is tenuous at best—what the hell is with Steve Schwarzman's suit? I mean, the guy is a fucking billionaire, and he looks like he's wearing something The Men's Wearhouse custom-made for MC Hammer. I haven't seen pants that baggy below 116th Street since 1988.

Get a fucking tailor, man.

(Oh, and next time, hire someone who actually knows what they're doing to design your annual report.)

© 2008 The Epicurean Dealmaker. All rights reserved.

Three Haiku

I.

Equity Private
Makes fun of Michael Porter.
Go ahead: read it.

II.

EP loves Apple
Computer, a fact I find
Strangely amusing.

III.

I love her writing,
But it is too long to read
On an iPhone screen.

© 2008 The Epicurean Dealmaker. All rights reserved.

Not Safe for Work

Stranger: "There's just one thing, Dude."
Dude: "And what's that?"
Stranger: "Do you have to use so many cuss words?"
Dude: "What the fuck you talkin' about?"
Stranger: "Okay, Dude. Have it your way."

— The Big Lebowski

In between dusting off my snowglobe collection and watching my backlog of "Highly Probable" M&A deals drift into the "Maybe, But Don't Count on It" and the "Who the Fuck Do You Think You're Kidding?" columns of my revenue report, I have had plenty of time to contemplate the mysteries of modern life.

Like: did Al Gore really invent the internet? Does the "Prince of Wall Street" still have a job offer in Financial Sponsors at a "bulge bracket" bank? And, is it true that Equity Private and Dan Loeb plan to use a mixture of shredded 10-Qs and portfolio company business plans as confetti at their upcoming wedding scheduled for a secret location off the Dalmatian Coast?

We may never know the answers, Dear Readers, but certain questions are worth asking anyway, no?

Along similar lines, I have had little success puzzling out the method behind the madness of certain other sites in the blogosphere in linking to these pages. Given the uniform brilliance, concision, and topicality of the posts which I so modestly share with you here—with which assessment I am sure the cleverest of you will heartily agree—I am constantly surprised that every site in the econoblogosphere and beyond does not automatically link to each and every one immediately upon publication.

(This confusion of mine does not extend to those few websites—which shall remain nameless here in their all-too culpable shame—whose failure to link to even the most incandescent and stupefying of my literary emanations is patently due to mean-spirited, uncomprehending envy. Face it, you sad pretenders, only the Great are called to Glory in the Pantheon of Genius, and your ticket stub expired years ago.)

Because lack of quality or intelligibility are so clearly not even worth considering as possible reasons for respectable, upstanding sites not to link to my posts, I can only conclude that the fault, Dear Readers, lies not in my stars but in my language.

And by "language" I do not mean to refer to that old canard that my diction and writing style is somehow excessively stilted, ornate, or pitched above the heads of all but the most erudite, perceptive, or anal-retentive of readers. After all, even the poster boy for plainspoken English prose, Ernest Hemingway, was not averse to using the occasional "ten cent" word and run-on paragraph when it suited him. (Usually in the context of sex, natch.)

No, by "language" I mean those naughty bits which get caught in the teeth of censors, FCC bureaucrats, and Episcopalian ministers everywhere; namely, cuss words.

Now, I have alluded before to the "functional Tourette's syndrome" which can afflict the ranks of junior investment bankers.¹ It occurs to me that I may not have made clear to those non-investment bankers in my audience (thank God for all three of you) that this coping mechanism is not limited to the clueless and jejune underclass of Analysts and Associates. Rather, it extends all the way to the top of the company pyramid as a permanent feature of social discourse within the four walls of an investment bank. No matter how high you rise on the org chart, you simply cannot maintain your authority, gravitas, or blood pressure without unleashing the occasional torrent of toe-curling language so foul and despicable that Lenny Bruce himself would cut his hair and join a convent if he heard it.

Having burned a few blue streaks into the wall-to-wall carpet of a few investment banks myself, I can testify to the fact that one usually feels appreciably better after having unloaded on some unsuspecting Analyst, computer screen, or (absent) client with such a tirade. Furthermore, as long as one is not on the receiving end of such a bombardment, one usually finds the performance quite amusing. There really is nothing quite so rib-tickling as overhearing a colleague deliver a ten-minute monologue on the inadequate parentage, physical endowment, and sexual morals of another person or object without having to use more than 15% of his words from the stock of those acceptable to the evening news.² There is a certain grandeur to filthy language, especially when it is delivered with conviction, and abandon.

But apparently many, many websites in this country cling to the patently false delusion that they are somehow "PG-13" sites oriented toward the putatively sensitive and tender-hearted "Man on the Street." Really, guys, what are you smoking? Sure, it is demonstrably true that 28.6% of the combined readership of the Wall Street Journal's Deal Journal and the New York Times' DealBook has an emotional age of 14, but I guarantee you that 98.6% of those individuals are of legal drinking age and possess at least 13 back issues of Juggs magazine. It is heroic to assume that anyone outside the investment banking, private equity, and hedge fund industries even gives a shit about what happens on Wall Street or in the world of finance. Certainly, the emanations and soundbites we hear daily out of Washington, D.C. and the non-financial media give us no reason to believe that anyone is paying attention to the facts.

However, I can take comfort that not all of my off-color diatribes fall upon entirely stony ground. There does seem to be some appreciation of my finely honed and fiercely delivered excoriations among my cultural and linguistic forbears across the pond. Personally, I have always held a soft spot in my heart for a race which can coin (and unselfconsciously deliver) a phonetic and descriptive gem like "wanker." I mean, crikey, even their bloody parrots say it.

However, I would not be honest if I did not share a certain queasiness I felt when I discovered recently that my rant about JPMorgan's takeover of Bear Stearns was the most popular post this site has ever published, by an factor of two or more, and that virtually all the offending traffic came from Old Blighty, erstwhile Queen of the Waves. Given that the piece was riddled throughout with references to defecation, buggery, and forced penetration of all kinds, I begin to worry that my English friends have not quite—to paraphrase an old joke—left their old public school chums behind.

Bah-dum-bum.

¹ Careful readers will note that I was much more liberal in my use of obfuscating asterisks when I referred to unapproved vocabulary in such early posts. I have become bolder—and, I must admit, lazier—in my old age. Those of you who do not approve of this development can go f**k fuck yourselves.
² I am no cunning linguist, but I tend to believe that it is often the proportion of naughty to clean bits in a particular utterance, rather than its absolute length, which determines its snicker-worthiness. I can think of no better example in this regard than my favorite utterance from that underrated cuss-fest, The Commitments:

"Fook you, ya faht fooker!"

Of course, alliteration helps.

© 2008 The Epicurean Dealmaker. All rights reserved.