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— Cover Story —
Who would read that? It's a fad, go away. The Wall Street Journal has everything we need except sports. Who are you guys, and why would anyone tell you bupkus? And my favorite: I try not to read, except for Page Six of the New York Post. In fact, it wasn't even that we were trying to report and write for a community that didn't realize it was a community and going with paper and ink in the Web's first boom era (although a few wise souls did suggest we build a Web site); it was simply that the world didn't seem to believe that looking at finance through what we called the prism of the deal had much sustainability. Somehow, like a strange miracle of time travel, we find ourselves, blinking in the bright sun, still here a decade later. Older, no wiser. Same junk in the vending machine. And surrounded by so many others that have fallen. Bear Stearns is gone (ugly meeting in '99: A half hour of scoffing and disbelief); so, too, is Lehman Brothers (mild interest, then early adoption). The Wall Street Journal remains, of course, now wrapped in the embrace of Rupert Murdoch. But whole newsstands of publications have disappeared (newsstands are endangered, too). In 1999 the tech mags were fatter than phone books; now they've gone the way of Bear, and business mags and newspapers dance on the edge of the abyss. On the other hand, our style of deal reporting has popped up in everything from The New York Times' DealBook to a myriad of specialized Web sites. The Internet, despite more twists than a soap opera, is a big deal: Our daily paper (actually twice a day) is now electronic; we have a fast-growing online aggregation product, Deal Pipeline; and our original bare-bones Web site, Thedeal.com, has grown up and donned long pants, containing everything from video to blogs to The Deal magazine -- still in print!
See the Complete: 10 Years of The Deal EconomyBetween reality and the mirage Bubble, trouble, toil and muddle
There were two unsettling critiques of our little scheme in fizzy 1999. The first was execution. How could you yahoos report what you claim readers want and need? This stuff is complicated. We're smart; you're not. Well, we did: From Deal Memos to deal structures to scoops to increasingly sophisticated analysis, though it wasn't necessarily fast or ever easy. Second, and more important, was conceptual. Who cared? How rich was this dealmaking vein? Why would buyout mavens want to read the same stuff as venture capitalists or investment bankers? And what made you think you'd have anything to report when the economic temperature plunged and dealmaking flat-lined? Today, some of these objections seem silly, even anachronistic, which helps explain why we're still here. There is a commonality of interests among our constituents, even if they didn't always recognize it; it really was an information-hungry community that extended across far-flung functional and geographic areas. Dealmaking was the common thread; it's how everyone got paid. Indeed, as we reported on various aspects of dealmaking and pondered its possibilities and limits, it began to transcend the nuts and bolts of names, structures and regulations that we first tackled. Dealmaking was a state of mind, a pyschology, a way of organizing the world. Deals, from bankruptcy cases to venture rounds to M&A, were nodes of activity in an increasingly tightly woven and very global network. It was all interconnected. Deals were simultaneously scorecards, relationship exercises, mechanisms of change, communication channels. Dealmaking, in a broad sense, shared many of the characteristics of the Web itself: accelerating complexity and speed; an ambiguity between competitors and collaborators, principals and intermediaries; the erosion of traditional demarcation lines, like private and public, or professional and amateur; seemingly contradictory tendencies like convergence and fragmentation. This transactional universe was hardly all sweetness and light. The power and ambiguity of these mutating and proliferating financial networks can spawn good or bad, economically, socially, legally. Enron and WorldCom were dealmaking machers; so was Wall Street. Like regulation, accounting or derivatives, complexity created opportunities for change, innovation, profit and efficiencies and dark corners for cheats, frauds, monumental screwups and distress. Some deals are good; some execrable. We learned early on how silly it was to declare all deals bad. M&A, in particular, is sensitive to the macroeconomy, particularly to the animal spirits, greed and delusion loosed by boom times. The willingness to spend vast sums of other peoples' money in periods of abundant liquidity is a recipe for shedding disciplines necessary to make the arduous task of combining large and complex organizations. M&A is not just about the first day; we wanted to make it about day 15 and year three. In the process, we learned a lot about the paradoxes of dealmaking: How during booms executing a deal is relatively easy, with big dollars masking underlying problems; but integration is proportionately difficult. In down markets, getting a deal done may require expertise and long hours; but that very rigor (and often smaller size) makes integration easier. Transformations are harder than bolt-ons. Cheering mobs of shareholders and analysts are bad signs. Forecasts are junk. There is no free lunch, even at the vending machine. Still, would all this last? We launched after several decades of steadily growing deal volumes, particularly in M&A -- a trend we figured couldn't continue much longer. Well, we were wrong. This concept we called the deal economy was clearly a product of many factors, from globalization to technology to a general bias toward deregulation that may well have begun in the United States but has long since spread worldwide. It powered onward. Periods of merger "frenzy" (a ubiquitous, if incredibly imprecise, cliché) had occurred in the past -- in the 1890s and the 1920s -- then either subsided or imploded in economic disaster. Was this trend toward increasing transactional volumes an anomaly? What was the norm? Was lockstep growth sustainable? We've now had a decade to study all this, a period tested by two devastating bubbles, the latter of which took us perilously close to the Great Depression. We've had moments when deal activity ground to a halt: The eerily quiet months after Sept. 11 and the credit freeze that occurred after the collapse of Lehman. And yet, while deal volumes are down, the technology, the people, the infrastructure of dealmaking survive and continue to function. More importantly, the pressure to do deals persists. The fact is, the deal economy is not a one-dimensional phenomenon. It's an intricate system of feedback loops and counterbalances. With private equity coping with its debt woes, strategic M&A may thrive; eventually, PE will right itself, probably around the time strategic M&A overheats. Bankruptcy is always ready to clean up the inevitable mess. Bankruptcy and restructuring are often ignored, but they're key mechanisms. Bankruptcy is the ultimate countercyclical component, the process that finds a bottom and establishes a platform to ascend (though not the only one, by any means: Distressed investors crave a down market, and private equity thrives in markets with beaten-down equity values). The deal economy, like all of finance, is irremediably cyclical. When folks are saying cycles are so yesterday, watch out. And that's the point: The deal economy is a response to a larger world in constant motion where nothing remains fixed. True, some deals stink to high heaven after many years; the merger of AOL and Time Warner still gives off a head-snapping stench. But the facile declaration that all deals are bad, destructive or dumb requires an answer to the following question: What's your alternative? What would this economy be without the ability to buy and sell corporate assets? The answer: It would be a wasteland of antiquated operations and high unemployment. Would Cisco be Cisco without M&A? What would IBM or General Electric be without the ability to reshape their portfolio of assets? Dealmaking is a response to the reality that innovation and creativity are, alas, relatively scarce. And modern finance is all about options. What would the often-forgotten middle market be with just a single financing source, the local bank (which may be neither local nor very banklike these days), that is, without private equity or leveraged finance? You can always debate when M&A creates anticompetitive entities or whether, say, commercial bank consolidation (or the elimination of barriers between investment and commercial banking) was a good idea. But the very fact that the best alternative for failing banks is a sale to a healthier rival, or that regulators are eager to channel buyout capital into a battered banking sector, embodies the ambiguity that colors everything in the deal economy. And so we're here, a decade later. It's been a bouncy ride, and
we're not home yet. But for all of our concerns in this turbulent
world, the reality and viability of the deal economy is no longer one
of them. The vending machine is.
See the Complete: 10 Years of The Deal EconomyBetween reality and the mirage Bubble, trouble, toil and muddle Comments |
In the Year of Our Lord, 1999, not many folks thought the idea of publishing a national newspaper for the dealmaking community was much smarter than selling sock puppets online. Fortunately, one of them was not Bruce Wasserstein, then chairman of Wasserstein Perella & Co. and private equity firm Wasserstein & Co.; now of Lazard. This was good, because it was his idea in the first place. In fact, as we wandered about soliciting advice and direction from would-be readers, sources and advertisers of what we were beginning to call The Daily Deal, mostly what we got was: You're nuts. 
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Fantastic article. I can get more out of just the editorals of Robert Teitelman that I can most all other financial publications. By the way, I am now based out of Cebu City, Philippines, and the economy here is unreal. 39 pages of Employment Wanted ads in the Sunday newspaper. New 15+ story buildings going up all over the city. When William Buckley went to meet his maker, I thought all thoughtful writing had come to an end! Thanks to Robert Teitelman, I see it is alive and very well! www.tecnarca.com