Musings | The Sickness That Is Trolling: How Jabs To One Are Slaps To Others

I'll just go ahead and say it: I was bullied a few times when I was younger.

I was poked at for my scrawny size, my inferiority complex, and worst of all, for my religion. Growing up in a mostly-white suburb, there was one day when our world history classes taught us about it (Jainism) and my fellow classmates subsequently learned that I was Jain. While I was proud that they were learning about the history of Jainism, many of the guys instead thought it would be funny to call me "Diaper Boy" as their way of understanding some of the tenets of the Jainism. With sentences like "So what, you don't kick rocks?" and "Why aren't you wearing your diaper today?" coming up, it hurt. Hard. I somehow was able to laugh it off then, but it still scars me to this day of the ignorance of those guys.

In this day in age, the worst kind of bullying is coming up on social media. I've been going through this Atlantic piece about the modern ways we are tackling cyber bullying, and what scares me the most is that even as people I know get older, their ignorance and sense of self-ethics never changes.

"Trolling," a quasi-bullying tactic I have been seeing way too often on Twitter, is getting a bit out of hand these days. From "subtweets" (tweets specifically referring to someone or a set of people without directly mentioning them) to direct attacks, I see so many snarky comments and jabs that while the jabber may think is funny and lighthearted, the jabbed may take it more as a heavy backhanded slap. It's not right and it makes that person look more of a fool than he or she already is.

What is even scarier to me is that some of these jabbers are well-respected people within their fields of work. I have seen journalists unfairly blow up on others (including myself). I have seen social media strategists/editors/directors/etc use some pointed language to take down the viewpoints of people, even if they are just expressing their opinions. I've even seen publications retweet tweets of others because they did a simple search on Twitter in order to publicly shame them. Really? Are we adults or are we still children?

I know it is unfair to point fingers like I am above, but what is scarier to me is who is to blame: all of us. Let's face it, we all have laughed at one of these actions. We all have seen them happen. But we don't ever do enough to stop it or even police it. I am at fault, and so are many of us.

The song from Avenue Q is sadly correct: Everyone's a little bit racist. But as grown adults, we have the ability to both stop ourselves from causing these disturbing jabs and to put a stop to others doing it by calling them out. The Atlantic's piece points on how the idea of a "self-reflection" box could come up before one posts anything due to algorithms, and that's a great and hopeful step. But if we cannot control ourselves from doling out these backhanded insults, then we all need a lesson in maturity.
We have seen individuals take action themselves. John Herrman took down ComfortablySmug, and Ryan Broderick has taken on some seriously scary 4Chan posters during the "Cutting4Bieber" mess. It takes balls to take action, and they both did great work. Guys, if you're reading this, thank you.

All I ask of each and every one of you (and even myself) is this: before you post, write, tweet, or say anything, take the extra few seconds and think: could this hurt someone? If it does, then hold back. Your psyche will thank you later.

PS: Also, if you've never visited it before, check out PostSecret. You will find some of the most powerful inner thoughts of people around you, and sometimes you'll even feel you'll connect with them.

Industry Thoughts | Private Equity's "Doughnut Hole" Is More Like A Steak Bait

Yesterday afternoon, Fortune's Dan Primack put together a piece on some of his observations during the SuperReturn International Conference in Berlin. It was an understandable tongue-lashing at the industry on how private equity investors and execs truly believe the leveraged prices are too high and yet are not calling for a pull back. Dan's line at the end sums up his piece perfectly:

To be clear, I'm not arguing that we're about to have another rash of TXU's on our hands. But that's due more to capital constraints than it is to changed attitudes or behaviors. What I am saying is that private equity investors are aware of a disconnect between their head and their heart. And they don't plan to do anything about it.

Dan is right in that PE execs are not openly calling for a pullback. This IS SuperReturn after all, where it's one of the major PE conferences designed to feature key speakers. Whether the Q&A session was more strict on getting answers or not is something to be seen, but we will have to rely on Dan's and Cristina Alesci (who Dan saw grabbing an interview right before he did - early BloomBird gets the worm, I guess) for the deep interviews at this point.
(UPDATE: Cristina responded to Dan's tweet in the most perfect way.)

While these execs aren't openly calling for the pullback, they are DEFINITELY saying it in private. In my many talks over the past few weeks with middle market, mega-size, and lower-market PE shops, many execs have told me that they are finally seeing deals pick up (everyone was in a rush to close deals at the end of December because of tax reasons) but the cheap debt is making everyone think twice. 

This is why I compare the doughnut analogy that Dan used to more like a "steak bait." 
(DISCLAIMER: I was hungry when I came up with this analogy.)

Private equity's investors (limited partners) have the upper hand again in this day in age of the private equity industry, and while there is cheap debt and financing out there, the equity dollars are still seriously crushed by the terms, conditions, and extra debt being loaned by the banks. It's like the banks drop out a big juicy Peter Luger porterhouse steak with a very strong hook and fishing line attached to it. You grab it, be prepared for a rough ride. As Dan put it in his post...

As one senior PE investor explained it to me: "You might get excited that someone is willing to put $1 billion of debt next to your single dollar, but remember that your bill is now sitting beneath one billion or them."

There is a heavy sense of trepidation among PE firms I've talked with in terms of deals with all the available financing out there; that is why you'll see much more structured, smart deals that will come out within at least the next 2 quarters. I will say this though: if I'm wrong, I'll go eat a paper steak, Dan.

- PE Feeds

Leveraged Stories | TSG Consumer Partners and Stumptown Coffee Roasters

Here's a nice and short private equity story: TSG Consumer Partners, one of the most well-respected consumer-focused PE firms (they helped grow companies like Vitaminwater and Smart Balance and currently own pretty well-known companies like Rebecca Minkoff, Pop Chips, Muscle Milk/Cytosport, and e.l.f. Cosmetics), bought a majority stake in Portland-based gourmet coffee company Stumptown Coffee Roasters back in May/June 2011 (announcement/closing). 

TSG was actually looking to expand within the gourmet coffee area, and from my talks with people in the firm, they've been looking at many specialty consumer sectors to work on.

It was reported in the New York Times that TSG had picked up a 90% stake in Stumptown with the "goal" of selling it to a larger company down the road. Now, knowing how the firm works, they would only sell to a larger company if the brand reputation their portfolio company (Stumptown in this case) was kept solid and not destroyed. 

(Also, I'm not surprised La Colombe Torrefaction, one of Stumptown's competitors, said this, as its founder Todd Carmichael wrote a scathing piece in Esquire's "Eat Like a Man" blog in May 2011, basically saying Stumptown sold out "to Wall Street." Stumptown's founder Duane Sorenson wrote a note shortly afterwards on the company website, and even TSG's head Alex Panos said that Duane is still calling the shots.)

However, it is definitely worth nothing TSG has done many short-term deals in the past with the goal of helping the companies it owns build its brand. The Portland Business Journal looked at the 2003 acquisition of Harry's Fresh Foods for example. The same article also mentioned that (and this is true) TSG execs even walk along store aisles for investment opportunities!

That same NYT article had mentioned that TSG talked with California-based coffee company Blue Bottle Coffee:

“If you want to grow your business you have to do it somehow, and if you can’t get a loan, you have to sell equity, unless you have a really, really well-off grandpa,” said James Freeman, the owner of Blue Bottle Coffee in Oakland, Calif. He said he’d met with two representatives from TSG in March, but would not say what they discussed.

The bigger story about TSG's acquisition is its plan for selective expansion. They opened two new shows in Brooklyn and added a bottling facility to expand the production of its cold brew coffee. 

Finally, Willamette Week put together a really good breakdown of TSG's desire to go into gourmet coffee. The quote on the social  media "backlash" is pretty funny:

The Internet was rife with conjecture: Stumptown was looking to break into Europe. Stumptown was broke. Stumptown had been bought by McDonald’s. “Did Stumptown just get sold to Vitamin Water? Maybe it’s time to switch to Clive [a small Portland roaster],” Decemberists frontman Colin Meloy tweeted.

So far, it looks like TSG is doing well with Stumptown. Sorenson is still running the show, and they're looking to expand into the right cities. A handful of PE firms are as successful as TSG in building up brands, and that will be one of the key futures of private equity.

Industry Thoughts | Public-ifying PE (an update)

Yes, it's been a while since this blog has been updated. I greatly apologize for this, but please know it was not on purpose. I've been spending a lot of time utilizing Twitter to write my thoughts (albeit to the 140 character limit), and I know my feed has been a bit off topic recently. So I thought I'd do a little update and share what is going to happen on this blog moving forward.

LEVERAGED STORIES
While the Private Equity Growth Capital Council and ACG have been been doing good jobs on sharing some stories about private equity success stories, I am going to write about some others I've been seeing, both on the success and failure sides. The bigger story I will aim to tell is more like a forensics report, digging as deep as I can to show what went right (or wrong). More importantly, it will focus on companies people will recognize well (from Dave & Buster's to the makers of the Slinky toy), with the goal of showing how much work behind the curtain PE is doing. The curtain is slowly getting pulled back by various people. I intend to rip it down.

REGULATION
From the SEC registration to public enforcement, private equity will be under a larger magnifying glass moving forward. I plan to keep track of what happens and keep you guys and gals updated. While it's more paperwork for PE firms (and the majority of firms work within the law), it's better for its public image as it continues to be a work in progress.

BETCHA DIDN'T KNOW...
Along with telling some PE success and failure stories, I'll pen a short post or two about a company that's well known among the general public that's, well, PE-backed. From Rebecca Minkoff to Rosa Mexicano, you never know what company I'll touch next.

CONFERENCE NOTES
While I'll definitely be tweeting during the many PE conferences I attend, expect some takeaway posts at the end of them. Intergrowth 2013 (the largest private equity conference in the world) is coming up in April, so expect some posts then.

INDUSTRY & ARTICLE THOUGHTS
I read and see a lot of private equity pieces. I'll share some of what I'm reading and give my take and/or responses to them. It could be data-centered or insight-centered. Heck, I'll throw in a snarky piece every now and then. Those will be fun.

MUSINGS
Every now and then you'll see a non-private equity piece here. It may center around something fun (sports, animals, WWE - yes, it's my guilty pleasure) or something thought-provoking (personal thoughts, ideas, etc.). I promise they'll be worth the read.

Team PE Feeds has garnered a bigger following than I ever would have imagined. I cannot thank you all enough and plan to up my game and share with you a deeper insight about PE to those who may have never been able to understand it.
There are many great private equity journalists dedicated to the data and insight, but nobody has consistently helped educate the public, which is totally fine. Many of them (Jason Kelly with his book The New Tycoons, for example) have done great jobs when they have. But their jobs can't allow them to do it full time.
That's where I come in.

Enjoy the leveraged ride.

- PE Feeds

Industry Thoughts | One-ish Year Update

July 2011. Yikes. That was the last time I wrote in here. First off, sorry guys for the lack in posts. Right when I had promised a return to consistency, work gets crazy and the PE industry gets gut check after gut check by the media, Democrats, and the general public. 
But let's take a look at some key stories that happened the past 3 quarters...

THE ANTI-PE GUT CHECKS: From one jab to another hook, the industry faced an ONSLAUGHT of acrimonious words from the mainstream media and American public, getting terms like "vulture capitalists," "job killers," and executives that are basically, to put it bluntly, fornicating acquired companies to cut costs, "strip and flip" them, and sell at a profit, leaving the workers to fend for themselves. Hmmm, how wrong is this picture here? Maybe Dan Primack's "wicked smaht" friend can show you.
So, what's been the response to the gut checks: the PEGCC released a site, Private Equity At Work, that touches the postive effects that larger PE firms have been making. Moreover, ACG had two sides, the Middle Market Private Capital Leadership Forum and a recently released PE education piece focused on the middle market (which is really becoming PE's future). You also had many journalists attempting to educate their readers about private equity, how it works, and the pros and cons of it.
That's great and all, but the problem here is that we can get countless economists, execs, and portfolio company workers to provide useful information to educate, but it takes 1 Jon Stewart segment, or 1 "debate" on NewsHour (where the journalist who will not be named here basically tries to take over the program), or 1 angry anti-PE tirade to turn the public (which, by the way, is in a phase of "Generation Pissed Off" and would be happy to find a way to skewer the financial services industry) more towards anti-PE.
It won't matter about the Stewart Weitzmans they're buying, the Huddle Houses they're eating at, or the countless industrial companies that provide things from power to 3D technology through Real3D, the anti-PE battle will continue on until one prominent and influential source can step up and explain what the industry is REALLY doing.
We need less Josh Kosmans and more David Snows.

PERFORMANCE IS KING: From strategic buyers still remaining a constant threat to higher multiples along with LPs clamping down on terms and conditions, the future of PE (the mid- and lower-mid-markets) is working to stay innovative on deal flow and operational improvements. Why? Because they need to show the pure performance off to their investors.
LPs are pushing PE to hire more Operating Partners (or people who understand operations and strategy improvements more, the LEKs, Gotham Consulting Partners, Parthenons, and 3rd party firms of the land) to handle day-to-day operations. PE is also taking a personal initiative to be more conservative and smart in their investments. Moreover, with the middle market and lower middle market divisions making more deals (Pitchbook determined that 3 out of 5 deals in the past decade were middle market-focused), we should still continue to see more careful deal flow coming out of the industry (albeit with higher multiples thanks to some overpaying that no doubt will happen from firms flush with cash/dry powder and a need to use it soon before terms run out).
Then we have survival of the fittest. Time is running out for many firms to use up capital and deliver strong IRRs. While some firms are able to snap up capital for new funds in a matter of weeks (some even getting it within 10 weeks!), others will struggle and get tens or hundreds of millions of dollars lower than what they expect. Does this stink? Of course it does, especially as LPs apparently have $1/4 trillion to spend on PE but hold it back.
When the future of PE is securely mid-market, expect the faucets to open up again. We're partly seeing that right now.

OPTIMISM: I don't think I've seen any other industry within financial services that has more optimistic dealmakers than PE. I recently returned from ACG InterGrowth 2012 and caught up with a lot of my colleagues in the industry. The two big things I got from everyone were:

• We are BUSY with deals and books to read through, and
• We may not be as busy as we like, but things are really starting to pick up.

Even with the doom and gloom of media pieces being put out there, PE is looking up and towards the sky. Heck, even PE is hiring again!

I am not worried about the industry moving forward into the election this November, even with the gut checks here and there. Besides, one happy middle market PE firm that I know quite well, Monomoy Capital Partners, is getting some fun time in the press, though Bloomberg Businessweek almost made the entire a boneheaded decision with its choice of cover. (Really, guys??) What BB is not hammering on though is that WHAT THEY ARE DOING IS NOT AN OUTLIER. Where is Jay Jordan, Riverside's Pam Hendrickson, or heck even CARLYLE when you need them for backup?

You also have to remember that Obama has been pushing the Small Business Investment Company (SBIC) program, also trying to make the head a Cabinet position, and lots of mid-market firms are applying for funds within it with the focus to help small businesses. That also explains the subdued attack by the Obama campaign on PE; their target isn't the industry, it's Bain Capital. (Also, you can't forget Obama's strong relationships to key PE execs, one publicized one being Blackstone's Tony James.)

I briefly touched three key drivers of PE's evolution through the past 12-ish months. I also have that optimism shared among execs, as the industry gets more out in the open through SEC registrations, the JOBS Act, and a growing desire among GPs to share information about funds to investors and even the public. Private equity is coming out of its off-the-radar style and slowly rolling out into the sun. When it finally becomes entirely exposed for all to see, we all will know how actually useful and beneficial it is for our economy and businesses small and large.

Industry Thoughts | Private Equity and the Public Image

Wow. It's been a while since I've been here. Sorry for the delay, folks, it's been a hectic past few months, but rest assured, more thought pieces will be coming back to the blog!


That being said...


So DealBook this afternoon brought in a new post from Steve Klinsky (founder and CEO of New Mountain Capital and chairman of the Growth Capital Committee within the Private Equity Growth Capital Council) as a response to Deal Professor Steven Davidoff on how VC has a better public image than PE. Klinsky goes on to point out the total number of PE firms out there (1,800+) as well as his firm and others have reached out to the public in positive matters, from "social responsibility dashboards" to working with the Environmental Defense Fund.


I've brought up the topic of PE and its lacking PR strategy before, and this situation is no different. Yes, there are some PE firms that have reached out through social media and other release to educate the public about how their firms (and the industry) are beneficial:

• ABS Capital Partners consistently releases information about their portfolio companies via Twitter
• Blackstone now consistently puts outreach programs they do through the firm and their portfolio companies via Twitter 
• Many other firms post jobs within their portfolio companies via Facebook and Twitter, as well as reaching out through LinkedIn

This outreach is great, and it's a good start. But the private equity industry's PR strategy is dwarfed by that of the venture capital industry (and even more dwarfed by the banking industry). You can argue that VC firms and banks have lobbyists at their disposal, but that's not even the largest reason why people know more about VC-backed companies and banks. They've found more consumer-friendly ways to reach out and they've done it extremely often.

So how can PE step it up? I think the solution is relatively simple: many recognizable companies from Dave & Buster's and Betsey Johnson to J.Crew and Hooters are owned by PE firms, so why not educate the public on how the industry has made these well-known companies better? (Dave & Buster's is a great example as Wellspring took it from being a bankrupt company and gave it an extremely powerful second life.) After you start the education on recognizable firms, you move towards the more complex ones, like the heavy machinery, manufacturing, and labor-heavy sectors. Besides, being able to slowly teach Americans that the industry has created American jobs across all areas is a formidable feat to have.

We'll see what happens with Congress as the carried-interest tax can keeps getting kicked down the road as well as how the SEC registration rules work. But if PE wants to build a stronger public image, work with what everybody knows.

Industry Thoughts | The Future of Restaurants and Private Equity's Possible Involvement

Back in November, Dan Primack of Fortune penned a post about how private equity firms "have a responsibility to company employees" while not only to their LPs. He alluded to his Bugaboo Creek Steakhouse "BBQ chicken nachos night" (which looks delicious by the way) where his digging led him to Trimaran Capital Partners's selling of the entire parent company (which also owned Charlie Brown's Steakhouse and The Office Bar & Grill, places I grew up with in New Jersey).
Today I saw updates in terms of all the companies:

• Praesidian Capital is buying Charlie Brown's for a paltry $9.5MM (Trimaran bought them for $150MM in 2005 from Castle Harlan). All of the 20 remaining stores are rumored to stay open.
• Bugaboo Creek got sold to an unknown buyer for $10.1MM in March 2011.
• The Office got sold to Villa Enterprises (which runs 4 fast food joints) for $4.7MM in January 2011.

It's a fresh start for all 3 restaurant chains and a good sign. Specialty has been key for consumer-focused private equity acquisitions these years, and restaurants, if owners revitalize their product or brand portfolios (or if PE execs see a potential revitalization), this buying trend should continue.
It will be an interesting sector to watch.

Industry Thoughts | Private Equity and the Investment Thesis

Dan Primack of Fortune penned a quick post today wishing that private equity firms would give a little more detail about their overall investment thesis when they buy portfolio companies. Reporters care less about the seller than the buyer, Dan writes, so explain at the closing of the deal why a firm bought the company and what's the game plan while they still have journalists' attention.

Yes, Dan, it would be nice for firms to be a little more specific. (It would also make MY job easier to determine deal flow for my work.) However, until there's more specific and targeted regulation on PE, you're not going to get as lucky and have PE firms be more welcoming in terms of sharing that information. Knowing firms I deal with every day, I'd be pretty surprised if they changed.

Now, while I say that, I'm not being bitter towards private equity firms. It's more so that there's no reason to share that information about the investment thesis, as the only people who REALLY need to know are the LPs and lenders. Again, when regulation hits, we'll probably see some compromises.

One other thing: I also think that because journalists in the private equity space have different sources, it's important to recognize their scoops. A good example is with HIG's Hooters of America deal: The Deal was able to uncover the mystery private equity firms that worked with Chanticleer (along with the purchase price), then Pitchbook was able to identify the Texas Wings buy that went along with the deal. It sucks sometimes that you have to go through 5-6 sources to get the entire story, but that's how the scoop world works.

Industry Thoughts | ACG And Lobbying, Part IV (A response to David's response)

After a lot of responses (including my own) over his recent article in PEHub, David Toll, the Editor-in-Charge at Buyouts, made a response of his own:

Thanks for joining the debate everyone, and all the thoughtful responses. I know that many portfolio companies grow, and sometimes rapidly, under PE ownership–we will be honoring one such company as a “Mid Market Deal of the Year” in about 45 minutes (via Twitter @Buyouts). As I noted in my column, I’ve also seen how effective promoting job-creation can be in lobbying Congress (by the NVCA and the Real Estate Roundtable). But I’m not convinced that, in general, the buyout strategy is about job creation–partly due to the borrowing imposed on my portfolio companies to pay for their acquisitions, partly due to the inefficiencies of many targets pre-acquisition (and the need to trim the fat), and partly because that’s what past research has shown. A PR strategy that centers on job growth arguably makes the industry an even bigger target for critics who feel they can prove buyout firms are about job cutbacks. All that said, the industry needs to do a better job of answering its critics and of getting a better shake on the Hill–I see that. One of my earlier columns had a headline that went something like this: “Is the industry going to accept SEC registration without a fight?” I meant it as a call to action. Perhaps it is a little unfair to criticize ACG for now acting. But I also don’t want to see the industry do anything that’s counterproductive.

I agree, David, that buyout firms do not have job creation as the primary motive behind their investments. I also am glad that your piece on SEC registration was a specific call to action; it's sad that only a few private equity firms were the only responders to the Dodd-Frank move while a lot of PE firms in general were whining about the upcoming regulation but not doing anything about it. 

That being said, it will be interesting to see how successful ACG's PR strategy about mid-market private equity is. There is no middle ground here: it is either going to do very well in convincing Congress that mid-market PE is the future or it's going to fall flat on its face. I guess we'll probably know in around 6 months or so.

Good luck, ACG! You're going to need it.

Industry Thoughts | ACG And Lobbying, Part III

Yesterday, David Toll, Editor-in-Charge at Buyouts, penned a piece on how ACG is putting together a mid-market PR campaign on how mid-market private equity firms are contributing to job creation in the USA. The site (click here), in Toll's view, is a waste of time and that it's not worth the effort to worry about what he calls an "unwinnable" PR battle.

Well, David, I absolutely disagree.

I've written a few posts about why ACG should have a lobbying arm or PR campaign for private equity firms. PE firms themselves had to push back against the growing moves from Congress (most recently via firms fighting the $150MM under management SEC registration legislation), and now that ACG (who has 3,300, or 23.5%, of its 14,000 members from private equity) is making a formal PR push focusing on middle market firms, it's a bright sign.

But what's important to recognize here is that something is better than nothing.

I've argued in the past that because the industry's PR machine was almost non-existent, when Congress sets its sights on the industry through implementing regulatory reform, firms were going to scramble and find backup plans themselves. The public has no clue what private equity can actually bring to the table in terms of restructuring companies, job creation, and actually creating some sort of value.
Hey, until the ACG's movement, the only type of PR going one was going to be Lynn Tilton's reality show. Do we really think that THAT'S going to leave a positive opinion on John Q. Public??

I believe that middle market (and lower-middle-market) PE firms are going to be the face of the industry over the next 3-5 years. Here's why:

1. The lower-mid-market guys are included in this SEC legislation mess as the threshold in terms of capital under management is about $200MM. Plus, most of the firms I talk with have at least $100-$150MM under capital! One of the exceptions is L2 Capital, which was a spin-off from Milestone Partners, a firm that focuses heavily on lower-middle-market.
2. If a growing negative sentiment from the public grows, it will lead to a populist movement from Congress that will slam heavier regulatory reform on the industry. I'm not confident that the government will be able to grow small and medium business jobs in the short term, and because companies of those sizes have the highest necessity for job creation, you can have PE firms who specialize in those types of businesses to come in and fix them up.
3. With the credit markets opening up again, these mid-market firms are getting more access to capital. However, lower-mid-market and mid-market firms in general are known to be significantly more cautious in their investments, so you'll continue to see low-multiple acquisitions from them. 
4. Mid-market firms majorly invest in companies in the US. They look to streamline operations and developing well-oiled machines. Besides, more and more firms are looking to talented 3rd  parties (e.g., turnaround experts, consultants) to help them fix their portfolios. Why now? Because they have the capital to pay for it again.

The private equity PR battle can be won. It's just that any voice lobbying for PE never existed before, and that if there was any organization that needed to spearhead it, it's ACG. The middle market is the future for PE, and by doing nothing to support it and educate the public, PE would be in for a hailstorm.

Again, something is better than nothing.