Discussion with Leading Private Equity Journalists

Following are my notes from this morning’s “59 Minutes” Panel:

MEET THE PRESS 2005: Discussion with Leading Private Equity Journalists
Sponsored by Broadgate Consultants, LLC

Moderated by Franci J. Blassberg, Co-Head of Debevoise & Plimpton’s Global Private Equity Team, Editor & Chief of the Debevoise & Plimpton Private Equity Report

Thursday, January 13, 2005, 8.30 AM 9.29 AM
The Yale Club, New York City

Panelists:
Dane Hamilton, Reuters
Danielle Fugazy, Thomson
David Snow, Private Equity International
James Politi, Financial Times
David Carey, TheDeal
David Toll, Dow Jones

Politi: The only way to get information is to have sources/friends in the industry. Not as easy as public deals, where all the info is public.

Politi: Interest in private equity is much greater than it used to be
Toll: We pay a lot of attention to fundraising. “We have to rely on the age-old symbiosis between sources and journalists.”

Blassberg: “How common are leaks? Where do they usually come from?”
Snow: “Leaks are epidemic, and the #1 source are GPs themselves.” They say, “My lawyers won’t let me tell you I’m raising a $1B fund, but off the record, we’re about to raise a $1B fund.”

Blassberg: “How do you know if a leak is accurate?”
Politi: “Always have two sources. Every leaker has a vested interest.”
Carey: “Make sure you don’t traffic in rumor. We make sure they’re first-hand sources.” Make sure the sources didn’t find out about the issue from just talking with one another. Make sure it’s not hurtful to someone.

Blassberg: “Most deals have confidentiality agreements. How do you feel about that, other than lucky?”
Hamilton: People talk to keep the relationship going.
Snow: An LP told me something, and I asked the GP about it. The GP told me to upbraid the LP for breaking confidentiality.
Hamilton: every reporter makes deals, e.g., for exclusivity.
Fugazy: exclusivity partly depends on a given publication’s publication schedule.
Politi: exclusives naturally get better placement.

Blassberg: “What makes a deal interesting?” Size, industry, other.
Toll: depends on how much detail is available. More detail makes for a better story. Human interest is important.
Hamilton: best stories have tension between contending forces. Bankruptcy court, auctions, hostile bids. “Anything involving Carl Icahn.”
David Snow: Stories about market trends. E.g., about GP kicking out LP for disclosure.

Blassberg: Do you have a favorite LP?
Toll: They’re all our favorites.
The ones with a bone to pick are our favorites.

Blassberg: The ones who are unhappy talk more.
Snow: You get most of the information from just a few people.

Blassberg: What does “off the record” mean exactly?
Snow: I’ll let a major news institution answer that.
Hamilton: I’ll tell people let’s have a conversation for background. If there’s something I want to use, I’ll ask permission to use it.
Politi: Particularly in M&A/deal world, sources need comfort that they can talk.
Carey: As a courtesy, I check what people mean by ‘off the record’.
Fugazy: we set the ground rules before a conversation.
Politi: firms have realized that they need to open up, because more attention is being paid to PE world.
Carey: I’ve been writing about PE deals since late 80s. Deals more fun then. Much newer business. Wesray never invested more than $5M in equity in any deal. “Market is much more efficient now-it’s like cattle coming to market.” Assembly-line quality. Much more staged, less drama.

Blassberg: Where is the drama? Who do you write stories for: insider in the industry, or outside reader?
Snow: depends on publication.
Politi: at FT, we’re writing for a general audience. That’s who we appeal to; we avoid “inside baseball”.
Toll: Drama is cyclical. Lots of drama in 2002 with VCs. When we go to a recession, there will be lots of drama in the buyout business. Lots of small companies out there with high leverage on their books.
Snow: So you’re long drama?

Blassberg: “Different PE firms have different levels of tolerance for talking with the press. What is a reasonable policy?”
Hamilton: Try to give reporters what they need, as much as possible. Worst: Don’t give reporter the complete brush-off.
Carey: Be forthcoming. The ones who are selective about disclosure get the worst treatment. Biggest firms usually are the most professional. E.g., Carlyle. In his experience, they’re very forthcoming. One of the most open organizations. KKR, Apollo, Blackstone. Smaller, mid-market firms often have policy of not communicating with press—probably force of habit. Also, some have poor habits.

Blassberg: Aren’t you assuming that dialogue is good? PE firms take advantage of inefficiencies—-why attract attention?
Carey: Last year, Clayton Dubilier Rice used our publication to discuss what’s gone wrong and our plans to address it. That was an astute use of our paper to communicate.
Once at a reception, someone told me “We don’t talk with the press”….and then literally turned his back and walked away.
Politi: if you get your message out when times are good, it will be much more transparent when times are bad.
Snow: PE firms are starting to care about brand.

Blassberg: What are big stories in 2005?
Snow: PE lawyers will do very well.
Hamilton: new kinds of exit strategies. New form of IDSs hitting the market?
Toll: Lot of institutional investors are trying to identify managers of the future. That motivates smart GPs to leave and set up their own shop.

Blassberg: New grads should go to PE again?
Toll: $84.7 billion raised for VC and buyout firms in the US in 2004. Next year 20-30% higher.
Politi: questions about access. Some firms are getting too ambitious about fundraising.
Toll: on buyout side, a lot of money going back to investors.
Snow: most secretive part of the business is secondary sales. Issues of ego. No one has an interest in publicizing a secondary sale.

Blassberg: Have numerous failures of IDSs, BDCs, tainted public’s perception?
Toll: buyout firms just got greedy on fees. These deals might have gotten done if they were done on more reasonable terms.
Hamilton: Trend of high-dividend IPOs is interesting.
Carey: BDCs were marketed to retail. Used brand name even though they were often mezzanine vehicles not PE.

William Xin: likelihood of Asia deals in 05?
Toll: head of Carlyle said, “Shinsei was perhaps the greatest PE deal ever.”

Audience member: Will trend of companies going private hurt your business, because of lesser disclosure?
Blassberg: often those deals are financed with public debt.
Snow: GPs are very careful about protecting progress of portfolio companies.

Politi: Kravis was very clear (at a recent conference) that hedge funds should stay out of PE business. We’ll see if they obey.

Hedge funds are, however, a recruiting threat, because they have better economics. Take a carry without a preferred return. Don’t share deal fees with LPs.