Random Ramblings

Yesterday I heard two different people – and two different events -- say the exact same thing: Mega-LBO firms are no longer participating in private equity. Instead, they are forming a new capital market that will play between “real” private equity (i.e. $500-$2.5b funds) and the public markets (i.e. SarBox-scarred death traps). The basic argument is that “real” private equity adds significant value to a company via changes in management, business strategy, etc. Mega-LBO firms, they say, mainly add value by acting as a deep-pocketed holding company before either selling to another mega-LBO firm or before finishing off a public-to-private-to-public cycle. “Real” private equity exits aren’t successful because of financial engineering, but rather because the portfolio company is legitimately worth more than when it first received private equity.

How silly.

The argument, of course, was made by mid-market PE folks who apparently feel overshadowed by mega-firms like Bain, Blackstone, KKR, etc. Get over it. They’re bigger and, yes, people like me are going to focus on them more because of it. It’s the same reason that more people follow heavyweight boxing than follow featherweight boxing.

The reality is that most mega-market firms are trying to add portfolio company value just like mid-market firms are. There are certainly exceptions – SunGard comes to mind – but many of the best mega-deals have included CEO changes, non-core asset disposal and strategic changes to better handle the global economy. Moreover, plenty of mid-market firms are taking advantage of dividend recaps just like the mega-firms are. Oh, and most mid-market firms doing a proprietary deal this month will be doing their first in quite some time. Auctions are pervasive, with Harris Williams and Goldman Sachs just playing to different tax brackets.

This isn’t to say that the PE market isn’t continuing its trend of segmentation, because it is. It also isn't to say that some mega-firms won't crash once the debt markets tighten, because they will. But it’s all still private equity, which is why this space will continue covering all of it.

*** Every time the PE Week Wire adds another thousand subscribers (we're now at 32k), I like to remind you that these morning missives are just a tiny piece of our editorial pie. To gain greater access and understanding, whip out your corporate credit cards and purchase a subscription to Buyouts Magazine, Venture Capital Journal or Private Equity Week. Robert Mills can help you out with that. Also, if you’d like to advertise within the PE Week Wire itself, please contact Naz Bayazit. As always, thanks for reading…

*** Paul Kedrosky has dubbed me a Kleinerologist, but I dropped the ball by not noticing that Russell Siegelman was leaving after serving as a partner for the past decade. After all, KP’s latest press release didn’t include him in its partner list, nor was he included on its latest regulatory filing. So congrats to ValleyWag for getting the scoop, although my colleague Alex Haislip yesterday got some confirmation from remaining KP partner Ted Schlein.

*** Speaking of personnel moves, Hamilton Lane co-founder Leslie Brun is formally – some might say finally – retiring at the end of this month. Brun most recently has been serving in a chairman emeritus role, following a succession/buyout plan but into place three years ago. One reader wrote in to say that Brun was planning to launch a new firm, but that is a bit of a misunderstanding. He is forming a new holding company, but the first investment will be in a Philly-area Nissan dealership. So go to Les if you want a new Altima, not a new private equity investment. He also is reported to be interested in getting a piece of the Philly Inquirer/Daily News that McClatchy is selling off.

*** Finally, Ken MacFadyen has rejoined Buyouts Magazine after having left us for a competitor which will remain nameless. Consider it a case of the grass being browner. Anyway, Ken is now managing editor, and can be reached at Kenneth.Macfadyen@thomson.com. Welcome back.