Let's talk about private equity; heck, everybody else is. Hospital operator HCA Inc. agrees to sell itself to a consortium of buyout firms for $33 billion, and all of a sudden private equity — a market (as readers of this publication well know) that has been going gangbusters for years — is suddenly white-hot news. "Huge Buyout of Hospital Group Highlights Era of Going Private," The New York Times shouted on its vaunted front page. "MEGADEAL MANEUVERS," The Boston Globe exclaimed atop a column opining on the mammoth deal.
To be sure, no one would argue that the leveraged buyout of HCA, the largest for-profit hospital operator in the U.S., isn't Big News. But what's surprising is that post-HCA, the media is suddenly treating private equity as though it were some sort of newfangled phenomenon, or one that's been hibernating for the past 20 years. Even The Wall Street Journal, which covers buyouts almost daily, felt compelled to offer a parenthetical and oversimplified definition of private equity firms in one of its three July 25 pieces on HCA, as though its readers had never heard of Kohlberg Kravis Roberts & Co. While other recent buyouts of big consumer brands such as Hertz Corp., Neiman Marcus Group Inc. and Toys "R" Us Inc. also generated significant press attention, none activated the Big News tripwire in quite the same way as HCA. One reason might be the involvement of Senate Majority Leader Bill Frist's family. But the other is even more simple, or simplistic: The deal's dollar value surpassed that of the buyout of RJR Nabisco.
The Times intoned: "If that 1980s deal came to define an era — as depicted in the book 'Barbarians at the Gate' — and helped usher in the modern private equity industry, the deal yesterday crowns private equity's ascension to the top of finance: the 'barbarians' now rule the deal world."
So there you have it. Some 15 years after it first hit bookshelves, "Barbarians" remains the ultimate media benchmark of dealmaking prowess, excess and newsworthiness; for a deal to be truly significant (and scary), it must break the RJR/Barbarians barrier. And HCA complied. Plug the words "HCA" and "barbarians" into Dow Jones' Factiva news retrieval system for the three days following the deal's announcement, and you score 30 hits — and that's before any of the business glossies weighed in. The stories kept coming well into early August, with even Time and Newsweek devoting significant ink to HCA and the "new buyout wave."
That KKR was involved in both RJR and HCA gave the press extra incentive to let the Barbarians references fly, as though Henry Kravis hasn't bought a slew of other companies since taking RJR private in 1989. And these references are not meant to flatter. "Barbarians at the Gate" chronicled "ruthless Wall Street dealmakers at their egocentric best," noted Denver Post syndicated columnist Al Lewis. "I can't wait to read the sequel — 'Barbarians at the Bedside.' Leveraged buyouts have one goal — and it isn't affordable medical care. They saddle companies with debts, necessitating cost cuts and price hikes."
For a business press reared on producing personal finance advice rather than real analysis of the corporate world or the economy, private equity presents a special challenge, since it takes companies out of the public market and out of reach of retail investors. RJR and Barbarians help these scribes by supplying a context for writing about private equity in a way that's accessible to almost everyone, if not entirely accurate. Take the Denver Post's Lewis. In the HCA deal, he writes, "[i]nstead of carving up cookies, they'll be carving up people" to pay off its buyout debt. Ha-ha.
Over at the Times, the struggle to make HCA relevant to general readers — that is, retail investors — is obvious. After explaining how the buyout spree is expected to continue, it issued the following warning: "The rise of private equity, however, raises questions for public investors, who have often sold businesses only to see them resold, at enormous profits, just years later by the private firms." In other words, firms are reaping profits that should belong to Mom and Pop Shareholder. But that logic assumes that the firms don't do anything to turn their companies around; that their companies would perform the same if they remained publicly held.
The Times took another stab the next day in a story about Goldman, Sachs & Co.'s prowess in private equity. Its less-than-startling revelation: Goldman makes oodles of money via private equity investing. Really? Observes the Times: "The rush of investment banks to replicate the Goldman model — using internal private-equity funds as a profit stream and as a means to fertilize its investment banking and asset management businesses — is the latest example of copycat economics on Wall Street."
"Latest example"? "Rush of investment banks"? Is it kidding? And just in case you missed that piece, the Times resurrected the point on Aug. 2, when it again treated Wall Street's love affair with buyouts as something new. The fact is investment banks have been reaping profits from private equity for years, and these units, as well as the conflicts they pose, have been covered by the business press. That doesn't stop the Times, however, from acting as if it just discovered it. Maybe that's the benefit of writing for an audience whose knowledge of Wall Street, the Times clearly believes, runs no deeper than "Barbarians at the Gate.". - Yvette Kantrow
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