Yesterday we discussed a Fortune column that picked apart Matt Taibbi’s massive Rolling Stone cover story on private equity, ‘Greed and Debt; The True Story of Mitt Romney and Bain Capital.
Today, let’s look at Taibbi’s response. Hold on to your hats people.
First, let’s review what the Fortune column, written by Dan Primack, said about Taibbi’s piece. Its major quibbles were with:
- Taibbi saying that private equity deals could be financed with “as little as” 5% down,
- Taibbi saying that taking on debt had a significant, negative impact on a company’s payroll,
- And Taibbi saying that a turnaround is not necessary for Bain and Mitt Romney to make a profit.
Let’s stick on that last point. In Taibbi’s original article, he says that turnarounds are nice, but “mostly irrelevant to the success of the takeover model, where huge cash returns are extracted whether the captured firm thrives or not.”
Fortune’s Primack responded by saying that the practice Matt Taibbi is talking about — dividend recaps, when companies take on still another loan to give investors a payout before the turnaround is over — is not enough to keep investors coming back, so more legitimate turnarounds are better for everyone.
Here Primack is just being disingenuous…I was never talking about what’s in these deals for Romney’s partners and investors. I was talking about what’s in it for Bain and Romney. And nowhere do I ever talk about whether dividend recapitalizations, “alone,” are sufficient to “bring limited partners back.”…
Instead, the whole “cover story” passage was intended to explain an important point: it’s certainly better for the PE firm if the company turns around, but if it doesn’t, that’s not so bad either, since if all else fails, they can just always just rape the acquired company. And while the “dividend recaps” aren’t by themselves enough to bring investors back to the next deal, you can bet they wouldn’t come to any PE deals at all if the PE firms they invested with didn’t possess this “rape in case of emergency” weapon in their financial arsenals.
Yikes. Now on to the minor points in Taibbi’s piece that Primack attacked.
Primack takes issue with Taibbi saying that private equity titans keep a low profile and, unlike the Carnegies and Hersheys of old, are not proud enough to put their names on museums, towns etc. across America.
Primack counters that by pointing out that Blackstone’s Steve Schwarzman has his name on the New York Public Library and KKR’s Henry Kravis put his name on the Columbia Business School. He also said that many PE execs regularly appear on CNBC — so, contrary to what Taibbi said, they’re not hiding.
Well here’s what Taibbi had to say about that:
When Thomas Lee Partners builds a museum to the dividend recapitalization in the Georgia town where 1,000 people used to work making Simmons mattresses (before THL paid itself a $375 million dividend on the company’s dime), then we can talk about the willingness of private equity executives to proudly show their faces anywhere outside Maria Bartiromo’s lap and a surrounding strip of Manhattan about the size of the U.S.S. Carl Vinson.
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