When the private equity frenzy comes to a halt, as it surely must one day, no one will be able to say that the media — or more specifically The Wall Street Journal — didn't warn us that the end was near. Over the past few weeks, the Journal has produced a steady stream of cautiously bearish private equity stories, setting the stage for the right to say "I told you so" when the buyout binge stops and the handwringing begins.
The Journal's cautious tone began back on May 29 with a front-page Money & Investing story whose headline said it all: "Private Equity: Is Deal Frenzy Nearing End?" The piece was carefully constructed so as not to be too bearish or too early — "It would be a fool's game to predict the end of the private equity buying frenzy," read its opening line — but it clearly carried a message of batten down the hatches. "Greed has taken over," it quoted Carlyle Group's David Rubenstein as telling a conference in Tokyo. "Nobody fears failure." Yikes.
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For a general audience, the story was given extra oomph and relevance by the observation that, according to some analysts, "without a widespread belief in the appetite of LBO firms for publicly traded companies, stock prices would be far lower." Yikes again. Still, the piece noted that things weren't all bad; while PE players like Carlyle and Ripplewood Holdings LLC were bearish, others, such as Kohlberg Kravis Roberts & Co., were decidedly upbeat. As the story's deck noted, there was a "split in views."
By June 8, however, the view seemed more ominous, at least according to the Journal. A front-page story that day, headlined "Market Pressures Test Resilience of Buyout Boom" and carrying the same byline as the earlier piece, Henny Sender, sounded all sorts of alarms for the private equity market, including higher interest rates, falling stock prices, rising bond yields and evidence of "buyout fatigue" among pension funds and other PE co-investors. While the story noted that the buyout boom had "blown through plenty of tests already," it had a decidedly pessimistic feel. "Observers warn the stakes for the bond and stock investors have never been higher," it pointed out, due to the amount of buyout debt held around the world. Adding to the gloom was a C1 piece that same day on four recent LBOs — Linens 'n Things Inc., Star Tribune, Freescale Semiconductor Inc., and Realogy Corp. — that "are already showing signs of strains." Triple yikes.
The Journal struck again on June 12, with a C1 piece on difficulties KKR is having lining up investors for its $26 billion buyout of First Data Corp. KKR's situation, the paper says, "underscores the challenging environment private equity firms could be facing — investors are pushing back against some deals just as rising interest rates could make it more expensive for them to borrow money."
When looking at these stories as a whole, it appears the Journal is clearly positioning itself to cover a private equity debacle before there actually is one. Other outlets might produce a sky-may-be-falling piece here and there, but only the Journal is methodically chronicling potential chinks in the private equity armor in a seemingly coordinated way. True, some of the coverage might feel annoyingly repetitive, unduly pessimistic, even overblown. But we understand why the Journal is keeping at it. One day something is bound to go amiss in private equity, and the WSJ will be able to say, "You read it here first."
Speaking of the Journal, we couldn't help but chuckle when we read its recent editorial calling on Gov. Eliot Spitzer to repeal New York's Martin Act, the broad anti-fraud law that allowed Spitzer, in his attorney general days, to go after research conflicts on Wall Street, among other financial sins. It was the act's powers, coupled with "a press corps that lapped up selective leaks," that enabled Spitzer to wrestle a $1.4 billion settlement from investment banks for their analysts' sins, the Journal complains. Of course, some of the Journal's own reporters were the happy recipients of those Spitzer leaks, just as Journal reporters, years earlier, lapped up leaks from another self-styled Wall Street enforcer, Rudolph Giuliani. Perhaps it's just another example of how the views expressed on the Journal's editorial page are at odds with those of its editorial staff.—Yvette Kantrow
