Friday Feedback

The sky is clear, the Boston Bruins are terrible and Google may use some of its $400 per share stock to buy up VC-backed Riya. In other words, it’s time for some Friday Feedback.

First up is last Friday’s discussion of Abry Partners vs. Providence Equity Partners, where the former accused the latter of artificially inflating the sale price of F&W Publications. Jack writes: “The problem is not that people aren't taking ‘due diligence’ seriously, but that it's treated only semi-seriously. To wit, can you come up with any examples where there was a failure of due diligence that wasn't an obvious omission, even if it was due to time and budget pressures? For example, with Refco, there were obviously some business transactions which were not understood very well, and rather than ask the obvious questions and seek corroboration of the answers, they were simply glossed over… Unless people in your position start to call out obvious transgressions on the due diligence front, the problems are only going to get worse. ‘Financial engineering’ and related ‘rocket science’ have far too much potential for abuse and are desperately calling out for more intense scrutiny. Your effects on the Refco/Lee front are far too lame and ineffectual, in my opinion. Are you being pressured to go easy on them?”

T writes: “What's most troubling here is that both firms are considered ‘experts’in [the media] industry segment. This is very different from TH Lee who claims no industry expertise and pays outside industry experts big dollars for diligence. Expert firms like ABRY and Providence feature internal experience, competence and resources unavailable to generalist firms. And with these two I would have said [prior to the suit] that their LP's were well served. Channel stuffing in publishing isdetectable - no forensic accountants need apply. Draws (books into market) and returns (books, book covers or affidavits)are a fundamental operating process in publishing. Setting draws and return estimatesrequires specific business skills.Past performance of like titles is the touchstone here. Any expert firm better know this stuff - and a whole lot more - cold.”

Dan asks: “What do you think Providence’s defense will be?” Good question T, since Providence still has several more weeks until it’s required to submit its answer to the Delaware court (only got served with the summons this past Wednesday). I write a bit about it in Monday’s print issue of PE Week, so let’s hold off until then. Oh, and then there’s this from Tim: “You made me think of lunch... All I could think of was 2 subs for $5 or a Beef 'n Cheddar from Arby's.”

Now on to Wednesday’s notes about U.S. economic interdependence vis-à-vis the following comments from talkshow host Bill O’Reilly: "If Al Qaeda comes in here [San Francisco] and blows you up, we're not going to do anything about it. We're going to say, look, every other place in America is off limits to you, except San Francisco. You want to blow up the Coit Tower? Go ahead." Tons of email on this, and I’m trying to respond to each one individually (slowly, but surely)...

Regular respondent Harvey writes: "Forget O'Reilly, but chew on this. We blue staters do the defense jobs, but we don't fight and leadany more. I'm an MIT grad and served in a Navy fighter squadron in Viet Nam. My C.O. was a Harvard grad, and other flyers were from Princeton and Yale, with the Naval Academy, Washington, Cal., North Carolina and other such schools thrown in. Three of my friends were guests in the Hanoi Hilton for over seven years. A couple lost their lives, either in Viet Nam or elsewhere in military service. Based on my personalexperience, and my vicarious experience with Marine junior officers fighting on the ground, I think that the enlisted men in our squadron and in Marine unitsgenerally expected that they would be led in the fighting by those who had ticketed themselves for the best opportunities that America had to offer… No more. So, yes, it's great that Massachusetts contributes so much to the technology of national defense. Unfortunately, it's not enough -- not by a long shot.”

Joe writes: “As per your underlying point, the fact of the matter is that business and government go hand and hand - and it is amazing to me how supposedly ‘smart’ people like Mr. O'Reilly can conveniently set this aside when it suits them. Not only does SF pay federal dollars (as you point out), but it is a hot-bed of innovation for almost every ‘new economy', which will no doubt have a significant affect on the future of military applications."

Jim: “As a venture banker, I just wanted you to know how much I thoroughly enjoy your writing style, your courage, your wit, and your passion. Keep up the good work.” Thanks Jim, but tell it to Joseph: “For the love of God, stick to business and stay away from politics. You offend at least half your readers when you go off on a rant. Who cares what you think?”

Have a great weekend…