Just about a year ago I was fired from the Greenwich Post after the manager of their biggest advertiser, Coldwell Banker Greenwich, threatened to pull their advertising if I wasn’t yanked. My publisher took about a nano-second to weigh whether he was in the journalism or advertising business and that was the end of my print run.
Which is water over the dam. This blog is far more successful, and far more fun, than the column, so no hard feelings. But I was fired for discussing the overwhelming debt loaded onto Coldwell Banker and its sisters, Century 21 and Sotheby’s, by the private equity firm of Appollo management. Apollo bought the parent company of the brokerage firms, Realogy, and smothered it in debt to pay its own investors. The point of my column was not to attack Coldwell Banker but rather to express dismay at how the new Wall Street was ruining good companies through its greed.
Today, a year later, the Wall Street Journal says the same thing. And the chickens are coming home to roost, to quote Obama’s preacher.
Wall Street might remember the private-equity boom for the billions in fees it collected along the way.
The rest of the country might remember it for a different kind of cleanup: job losses created, in part, by unsustainable debt loads hoisted on thousands of companies across the economy.
So far, the private-equity industry hasn’t come to terms with this inevitable bloodletting. That is largely because it has been spending the last two decades trying to reform its image from the 1980s, when buyout artists were branded unrepentant “flippers and strippers.”
The makeover can’t hide the basic facts: Otherwise-decent companies are being subsumed by debts that simply can’t be paid in this brutal recession. There is a certain irony that the Web site of the industry’s trade group, the Private Equity Council, highlights three investments — MGM Studios, Univision and Hilton Hotels — that are already struggling mightily.
There are more than reputations at stake. There are big portions of the economy, too. Private-equity research firm Pitchbook Data estimates 7.8 million people are employed by companies owned by private-equity firms.
“Things are bad, and because of the capital structure, it’s even more challenging,” says Pitchbook’s John Gabbert. Private-equity owners are “going to do everything they can to make these companies lean to service that debt.”
Buyout bosses have for years said they had properly “stress-tested” their numbers, leaving room for a downturn. But they couldn’t anticipate a near depression.
Just look at Moody’s latest Bottom Rung list, which features the companies it views as most likely to default on debts. The buyout gang’s all there: Univision, Harrah’s Entertainment, Realogy Corp. and Jacuzzi Brands Corp. among others.
Gee, I sure hope Coldwell Banker doesn’t threaten to pull its advertising from the Wall Street Journal!
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