Sunday, September 14, 2014

Some Work of Noble Note May Yet Be Done

What is the price and cost of duty? What is its pleasure?
We are not now that strength which in old days
Moved earth and heaven, that which we are, we are,
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.


— Alfred Lord Tennyson, “Ulysses

Ever since the release of Dr. No in 1962, the James Bond 007 films have acted as a touchstone and running commentary on popular culture and society. For over half a century, a parade of different Bonds, Bond Girls, and increasingly over the top villains have offered escapist fantasies of varying implausibility and ridiculousness which have served, inter alia, as travel brochures, fashion statements, and advertisements for the benefits, drawbacks, and terrors of technological progress. They have done this, for the most part, not because it was their makers’ purpose (or even within their power) to critique society, but rather because they were intended to be hip, with it, and relevant, even at the inevitable expense of any seriousness or credibility. (Roger Moore, anyone?) With various degrees of success, these pop confections have held a mirror up to society. It is no wonder not everybody likes what they see.

These thoughts were inspired by film critic A.O. Scott’s interesting essay on the death of adulthood in American culture, which seems to be making the rounds of the culturesphere. He says many things, but his major point seems to be that popular culture, moviemaking preeminent within it, has elevated a strain of anti-adulthood and fixation on youth long dominant in American culture to the forefront of everything we see. I am not qualified to judge the correctness of his claim, but it certainly does seem to me the flight from responsibility and adulthood and the joys and tribulations of perpetual adolescence have become a leading subtext or topic for a very large number of popular entertainments nowadays. In particular, this cultural conversation seems to be focused on men and boys and their refusal to grow up.

Interestingly, upon reading Scott’s essay, my thoughts turned immediately to the most recent film in the Bond series, Skyfall. It occurred to me this movie can be read as providing a very interesting commentary on the issues of growing up, responsibility, and adulthood for a man nowadays, even if—or perhaps because—it is wrapped up in a popular escapist spy thriller. I claim no special cultural profundity for the film, nor no searing insight for the filmmakers or screenwriters, but I think the mirror which this particular thriller holds up to our current zeitgeist is pretty revealing. Even if the cultural critique I read within it was unconscious, or only semi-intentional, that does not vitiate its insight or force. Perhaps it enhances it. You Delightful Readers can judge for yourselves. If Stanley Cavell can find deep commentary on Hamlet embedded in Alfred Hitchcock’s North by Northwest, I can certainly tease a bildungsroman out of a Bond film. It’s my blog, anyway.

* * *

I will not tax your patience by relating the plot or other details of the film which you can discover yourself if you like. Nor will I spare you any spoilers. If you have not seen it already, there is no plot element I can reveal that will diminish your appreciation of the movie as cultural critique. In my experience, anyway, it is a measure of the quality of a story that you are willing to reread or rewatch it even when you know how it turns out. Skyfall is that good a movie.

The key plot points I would draw your attention to are as follows:

  • At the beginning of the film, Bond is accidentally shot by his competent, no-nonsense assistant while attempting to recover a stolen data file from the top of a train barreling toward a tunnel of no return (cue Alfred Hitchcock and Sigmund Freud). Bond’s assistant, who happens to be black and female, shoots him on the explicit orders of their boss at British intelligence, “M,” who, while white and old, also happens to be female (Judi Dench). Bond, by the way, is an orphan who has a simultaneously fraught and close relationship with M which a casual observer could mistake for a mother–son dynamic.
  • After plunging to his apparent death in deep water (cue Carl Jung, opening credits, and Adele’s theme song), we later discover Bond is alive after all, although he appears to be hiding from M and MI-6 in an exotic backwater and spending his time in self-destructive drinking, meaningless sex, and taunting dangerous arachnids for thrills and money.
  • Bond comes back home to mother M when he hears she and MI-6 are under attack by a mysterious hacker who can penetrate British intelligence’s defenses at will. M displays no regret, casually informs Bond she has sold his home and all his belongings, and puts him into a crash course to get fit for active duty again, at which he struggles painfully. Nice homecoming.
  • Bond tracks the mysterious hacker through various exotic locales and the beds of one or two expendable women to an abandoned island off the China coast, where he discovers a platinum blond Javier Bardem who minces and lisps and puts the moves on our trussed up spy. Bardem, it seems, is Bond’s evil twin, who is pissed at M for betraying him to the Chinese. He has channeled his anger into a worldwide empire of computer intelligence and manipulation, which he sells to the highest bidder. Strangely, though, this evil computer genius uses data screens that look like video games.
  • After more plot machinations and an unsuccessful attempt on M’s life by Bardem (for an evil computer genius, he’s pretty lame with a gun), Bond flees with M to his ancient family home in Scotland, Skyfall, where he acquired what an MI-6 psychologist called his “pathological rejection of authority due to unresolved childhood trauma.” Bond himself tells M they’re going “into the past.” For transportation, they use Sean Connery–Bond’s Aston Martin DB5 from 1964’s Goldfinger. Into the past, indeed.
  • An epic battle ensues at Skyfall, in which Bond, M, and Bond’s old gamekeeper and surrogate father battle Bardem and his small army, resulting in the destruction of Skyfall (which Bond hates), the Aston Martin DB5 (which only seems to mildly irritate Bond), and Bardem’s army. Bardem tracks a wounded M to a chapel where, while trying to persuade her to shoot both herself and him in the head to end their misery, Bond literally stabs Bardem in the back with a large hunting knife. So much for homosexual tension with your evil twin.
  • Finally, after blessing Bond with her approval, M dies.
* * *

Now of course everyone who watches Skyfall knows all about James Bond. (All Bond movies assume it.) He is a charming, ruthless killer, a master manipulator with no empathy who treats friendly and hostile women alike like Kleenex and enemies like target practice. He is unmarried and childless, a man with no duties or responsibilities other than his job, which he often does grudgingly and against orders. Come what may, he always wins, usually punctuating his triumph with a cynical joke. As a cultural symbol of the last half century, James Bond is Peter Pan with a gun. For a British character he is as American as they come.

And yet in Skyfall he is betrayed and (symbolically) killed by women (including his mother), he falls into adolescent irresponsibility and self destruction, he is blocked and belittled by the genius avatars of today’s high technology (one of whom is gay or bisexual and the other is so young he still has spots), and he struggles not very successfully against physical and intellectual decrepitude. What more comprehensive list of challenges facing modern American man can one compile? What greater list of fears and blocks to maturity torture the brains of today’s man: emasculation, obsolescence, irrelevance, sexual confusion, self-indulgence, failure, age?

But Skyfall’s James Bond does not remain on the beach in India to sulk, boozing for breakfast and daring scorpions to sting him. He does not smoke pot and play Parcheesi with his stoner 30-something friends while the world burns or skip dates with beautiful women far out of his class to rearrange his vintage comic book collection. He is no Marvel superhero or genetically enhanced super soldier who can pretend to be invincible. This James Bond is the most vincible hero we have seen. And yet he picks himself up painfully, dusts himself off, and throws himself back into a game he is not sure—we are not sure—he can win, because it is his duty.1 This is the opposite of the flight from adulthood. This is its embrace: the embrace of duty and responsibility. If there is a bubblegum escapist fantasy thriller which offers a better critique of the flight from adulthood—yet does not shy away from depicting how difficult and costly adulthood is—than this, I do not know what it is.

* * *

At one point, as Bardem’s villain bears down on M’s public hearing to kill her and Bond sprints through the streets of Whitehall to stop him, Judi Dench–M recites the conclusion from Alfred Lord Tennyson’s poem “Ulysses” at the top of this post. The effect is inspirational, as we fully understand by now the effort and will it requires for Bond to push his aged, broken-down body through the streets to rescue both the head of his service and the only woman he has considered his mother for his entire adult life.

And yet Bond is not Tennyson’s Ulysses, a selfish, vain old man who wants to abandon his aged wife—who waited patiently for him for twenty years of wandering—his dutiful son, and his own people, to fling himself onto the wine dark sea once more in search of glory and adventure. No, Bond is a soldier, a dutiful son who dons his buckler and sword to wade again and again into the blood and mud of the battlefield, risking life and limb for the country which is his only family and his only allegiance. At the end of the movie, Mallory–M welcomes him into his new office—the original Bernard Lee–M’s office, down to the paneling, soundproofed door, and paintings on the wall; a fine, full circle the filmmakers have crafted for us2—and tells him as he tosses a new mission brief onto the desk, “So, 007, lots to be done. Are you ready to get back to work?”

Bond replies with a smile, “With pleasure, M. With pleasure.”

That is adulthood, children. That is what it means to be a man.

Related reading:
A.O. Scott, The Death of Adulthood in American Culture (The New York Times, September 11, 2014)

1 I am not overlooking the element of revenge in Bond’s motivation; it is undoubtedly there. But this is just to say that Bond’s character’s motivations are multifarious and complex, as they are in real life. This makes Skyfall a better film, if a more complicated and ambiguous one in many respects.
2 Note how, having reset the location of M’s office back to its setting from the very first film of the series, the filmmakers have also given enough backstory and proof of Mallory’s personal courage and toughness to justify his position in M’s chair. No longer just a fat, slightly ridiculous old man behind a desk, M’s role as leader and father to James Bond has been justified to us and to Bond. This little bit of the patriarchy, at least, makes sense again.

© 2014 The Epicurean Dealmaker. All rights reserved.

Wednesday, September 3, 2014

Amakudari Revisited

Thomas Nast, Mr. Moneybags
“If you were sensible of your own good, you would not wish to quit the sphere in which you have been brought up.”
“In marrying your nephew, I should not consider myself as quitting that sphere. He is a gentleman; I am a gentleman’s daughter; so far we are equal.”
“True. You are a gentleman’s daughter. But who was your mother? Who are your uncles and aunts? Do not imagine me ignorant of their condition.”
“Whatever my connections may be,” said Elizabeth, “if your nephew does not object to them, they can be nothing to you.”


— Jane Austen, Pride and Prejudice

Newly listed advisory boutique Moelis & Company set the cat among the pigeons yesterday by announcing it has hired former House Majority Leader Eric Cantor to be a director of the company and a Vice Chairman in their advisory group. This news seems to have pleased approximately everybody, from Moelis & Co., which is delighted with their prominent and newsworthy new hire; Mr. Cantor himself, who can anticipate being approximately $3.4 million richer over the next 18 months or so; and up to and including critics of the Washington-to-Wall Street revolving door, who are now in possession of rich fodder for tut-tutting opinion pieces bemoaning the sorry state into which our crony capitalist democracy has sunk. In Washington, D.C. and on Wall Street as well, it is an ill wind that blows nobody any good.

While the generous cash and restricted stock which Mr. Cantor is receiving from his new employer seems to have been viewed by most as sufficient and self-evident explanation of why he chose to accept Moelis’s offer, there does seem to be some confusion among certain commentators as to why Moelis wanted him. Dennis Kelleher, former Senate staffer and head of non-profit public interest lobbying group Better Markets—about which nobody was talking last week and about which everybody (or at least a larger number of somebodies) is talking this week, thanks to said announcement—claims loudly that Moelis hired Cantor because 1) they wanted the publicity, 2) they want his political insight and connections to lobby for legislation and regulation favorable to their business, and 3) they want to matter more in Washington. While Matt Levine effectively deflates the more grandiose and overreaching of Mr. Kelleher’s claims—and particularly punctures the notion that a focused advisory boutique like Moelis & Co., which faces few of the proprietary trading or balance sheet capital issues its larger integrated universal bank competitors do, has common cause with said competitors in shaping the larger regulatory agenda—I cannot disagree with the broad outline of Mr. Kelleher’s remarks.

The important nuance which I would add, however, is that Moelis’s hire of Mr. Cantor must be examined in light of their mission as a client-focused advisory firm. Mr. Kelleher’s claims gain more weight if one properly understands that, notwithstanding the official job titles which Moelis & Co. have granted the deposed ex-Congressman, his real role at the company should be understood as Pet Famous Politician.1

As such, Mr. Cantor has several interrelated roles and duties:
  • Publicity magnet – To raise, by his very presence, the profile and awareness of Moelis & Company in Washington, D.C., the news media, and the general population at large. Ken Moelis, while broadly known on Wall Street and among the business community, does not carry the star wattage to pull this off by himself. This is known as general brand advertising.
  • Fame whore magnet – Notwithstanding all their wealth, power, and influence in the economy—and their often low opinion of and fraught relationship with government—even the most illustrious businessperson tends to get a flutter of excitement when they meet a well-known politician. This can probably be laid to the fact that even the meanest politician tends to have fame and celebrity status well in excess of the average business leader, and almost everybody is curious to meet a celebrity. It also probably has to do with the fact that politicians tend to have power, and business people tend to be the kind of people who are attracted to power.
  • Door opener – As Messrs. Kelleher and Levine both agree, Mr. Cantor is neither trained in nor necessarily exhibits any of the transaction processing skills of an advisory investment banker. Nevertheless, Mr. Cantor is likely to have some contacts in his Rolodex whom his new colleagues would love to get in front of to pitch their wares, and I am sure they will hand him a prioritized call list as soon as he walks in the door. Even if Mr. Cantor does not personally know all of his employer’s prospective clients, senior calling officers will be eager to use him as bait (see Fame whore magnet, supra and Subject matter expert, infra) to get that key meeting with a high priority target CEO or Board of Directors which they’ve been trying to break into for ages. The kind of large, high profile clients which a Moelis & Co. wants to work with tend to have overwhelming numbers of investment bankers constantly importuning them for business and usually limit their work to a small handful of trusted relationships. Hence they tend to keep unknown bankers at a firm arms length. The flimsiest excuse to get a client to open the door and take a meeting—“Hey, come meet the former House Majority Leader of Congress!”—is welcome. Besides, correctly or not, most senior bankers believe once they get in front of a client they have the skill to win the assignment themselves; all it takes is access. Mr. Cantor will only have to smile, relate a few political war stories, and then shut up.
  • Subject matter expert – Our ex-Congressman does have one obvious skill set which is highly valuable in corporate advisory work and which is cultivated assiduously by senior bankers eager to build a name and a business for themselves: he is very well connected and extremely knowledgable in an important segment of the economy and the dealmaking environment. The fact that his subject matter is relevant in multiple dimensions to almost every business which Moelis & Co. would like to serve is just icing on the cake. Chief Executives and Board directors will be exceedingly interested in the insights Mr. Cantor can share about who knows what, who hates whom, and how things get done inside the Beltway, because in almost every instance that will have a direct effect on their daily business and/or the particular capital raising, M&A, or corporate finance transaction at hand. This is an area where Mr. Cantor will be able to add real content to the discussion and share valuable information and intelligence all on his own, and it won’t involve him smiling and shaking hands like a bobble doll.
  • Deal originator – Of course, under the right circumstances, there is nothing to prevent Mr. Cantor from using the assets and attractants listed above to source his very own transactions, instead of just contributing to those of his colleagues. This would certainly entitle him, in my book, to a shot at much larger incentive compensation than Moelis & Co. have guaranteed him for joining the firm. There is also circumstantial evidence that Mr. Cantor may indeed have key senior investment banker skills of a high order. After all, a very large component of his job as Congressman and House Majority Leader involved selling, creative dealmaking, and high stakes, high pressure negotiation. These are the critical skills a senior investment banker must bring to bear to win assignments and close transactions, not filling in spreadsheets or wordsmithing press releases. That’s what the little people do. If Mr. Cantor is looking for inspiration along these lines, he could do worse than consult the case of Rahm Emanuel, who turned a senior political aide position in the Clinton administration into a two-and-a-half year stint at Wasserstein Perella that earned him over $18 million.
Perhaps Mr. Cantor is not quite so unworthy after all.

* * *

Of course, in your wonted role as Clever and Discriminating Readers, you delightful people will already have noted that nowhere in my speculative litany of tasks for which Moelis & Company may have hired our peripatetic politician is the duty of lobbyist. It is possible, of course, that his employer does anticipate fielding Mr. Cantor back inside the Beltway when his current restrictions expire. But, if so, I suspect any such lobbying will be indirect and done on behalf of clients rather than for Moelis & Co. itself. In fact, I venture to guess Mr. Cantor will most likely offer access and intelligence on whom to contact within government to his employers and clients, rather than leading any direct or indirect lobbying charge himself. After all, if he pulls off his other roles appropriately, he will be both too busy and making too much money for the firm to spend much time hanging out with politicians and regulators.

I suppose this is the best explanation of both Mr. Cantor’s appeal to an investment bank like Moelis and the amount of money a former Congressman like him can make via amakudari. Like it or not, government is important to business, and the people who know how it works, how to make it work, and whom to work to make it work carry extremely valuable intelligence, even if they do not meddle directly in the process. In fact, I suspect Moelis & Co. spends less on senior lobbyists than they hope and intend to pay Mr. Cantor.

After all, investment banks are in the business of making money. Not changing regulations.

Related reading:
Moelis & Company, Form 8-K dated September 2, 2014
Annie Lowrey, What Eric Cantor Is Really Going to Do on Wall Street (New York, September 2, 2014)
Matt Levine, What Can a House Majority Leader Do for a Bank? (BloombergView, September 2, 2014)
Timothy P. Carney, Cantor’s not lobbying, but his big payday should upset conservatives (Washington Examiner, September 2, 2014)
Amakudari (January 20, 2007)

1 It is important to note I claim no special insight into Moelis & Company’s actual rationale for hiring Mr. Cantor or its future plans for him. These remarks constitute rank speculation, based solely on public information and my over 20 years of experience in the Wall Street septic tank, not privileged insider information. That being said, I have seen similar scenarios before, and they almost all fit the pattern which I lay out for you charming people above. My rank speculation, in this instance, is probably a pretty good guess.

© 2014 The Epicurean Dealmaker. All rights reserved.

Monday, September 1, 2014

Labor Day

It is the tunnel which makes the light at the end of it beautiful
Diego Rivera, Melancholy Promenade, 1904
Thomasina: “Oh, Septimus! — can you bear it? All the lost plays of the Athenians! Two hundred at least by Aeschylus, Sophocles, Euripides — thousands of poems — Aristotle’s own library! … How can we sleep for grief?”
Septimus: “By counting our stock. Seven plays from Aeschylus, seven from Sophocles, nineteen from Euripides, my lady! You should no more grieve for the rest than for a buckle lost from your first shoe, or for your lesson book which will be lost when you are old. We shed as we pick up, like travellers who must carry everything in their arms, and what we let fall will be picked up by those behind. The procession is very long and life is very short. We die on the march. But there is nothing outside the march so nothing can be lost to it. The missing plays of Sophocles will turn up piece by piece, or be written again in another language. Ancient cures for diseases will reveal themselves once more. Mathematical discoveries glimpsed and lost to view will have their time again. You do not suppose, my lady, that if all of Archimedes had been hiding in the great library of Alexandria, we would be at a loss for a corkscrew?”

— Tom Stoppard, Arcadia

Do you take stock, regularly, of what you are carrying in your arms, Gentle Reader? Do you take care to pick up and discard the right things, things which make you happy and proud to carry? Do you seek out and cultivate those things you will be pleased to press into the arms of companions who go on without you? Things they will be eager to carry themselves? Love, knowledge, kindness, and wisdom are big things, things which fill up your arms and your soul, but paradoxically weigh next to nothing: they are easy to carry. They make excellent gifts to bequeath at the end of your long journey.

Keep your eyes on the road before you. Stay alert for good things to add to your burden. Those are the legacy you will contribute to the march. That is how we will remember you.

It’s time to go back to work.

© 2014 The Epicurean Dealmaker. All rights reserved.

Saturday, August 23, 2014

All Hail and Farewell, the Trophy Kids

Not everybody can be Venus
Adolphe-William Bouguereau, The Birth of Venus, 1879
Mildred: “That Ted Forrester’s nice-looking, isn’t he? Veda likes him.”
Monte: “Who wouldn’t? He has a million dollars.”

— Mildred Pierce
(1945)

Wall Street has a problem.

Kevin Roose, who wrote the definitive bildungsroman/sob story of early-2010s twenty-somethings on Wall Street, nails it. Finance is no longer the first choice of ambitious, high-achieving college graduates. Technology is:
Hyperdriven, multitalented young people aren’t picking tech over finance because it pays more. They’re picking it because the lifestyle is better, because it’s just as competitive to get into (if not more so), and because being on Facebook’s mobile ad team allows them to feel better about themselves than making DCF models for Fortune 500 companies all day. In their eyes, going into tech is a way to remain among the cultural elite without selling your soul.
It’s not that Goldman Sachs, Morgan Stanley, and every other well-known firm aren’t attracting enough candidates, they’re just not attracting the “best” ones:
These firms are having no problems drawing applicants out of college, but what I’ve heard from senior Wall Street hiring managers is that they’re not the right kind of applicants. They’re second-stringers, as far as the banks are concerned. The students these firms want to attract — badly — are increasingly going to Google or Facebook instead of Goldman and J.P. Morgan. (Or, almost worse, going to Goldman and J.P. Morgan, working for a year or two, and then quitting to go to Google or Facebook.) And that kills the banks’ sense of supremacy.
I suppose it is a measure of our diminished times that Mr. Roose chooses to dub these careerist paragons of conventional wisdom “Renaissance Kids,” but I get that he needs to flatter his demographic that their uninspired and riskless choices denote some measure of intellectual breadth or reflected historical glamour. After all, he has trend pieces to write and books to sell. Personally, I cling to the outmoded notion that “renaissance man” (or woman) should mean something deeper than a Groton- and Harvard-educated 3.70 GPA history major/lacrosse player who read the Bhagavad Gita once in order to satisfy a distribution requirement. But I am stubborn that way.1

Instead, I prefer to label these special snowflakes Trophy Kids, since their entire young lives have been spent in pursuit of trophies and awards of all kinds, scrapping and scrambling to get into the best schools and the best clubs and the best jobs from the moment their hypercompetitive parents decided they should. Of course, “best” in this context means what everybody else thinks is best, so the trophies we are talking about are clear, unambiguous, and well recognized by everyone: top grades in school, passionate commitment to approved extracurriculars, conspicuous community service to high profile, photogenically needy causes, and the right employer out of college.

“Trophy Kids” is also apt because these socioeconomic poster children make themselves highly desirable as acquisitions by those institutions which aspire to have the best themselves, just like aging billionaires like to accumulate trophy wives and girlfriends. It is not too far to stretch a metaphor to observe that Trophy Kids’ relationships to high-prestige employers are fundamentally the same as trophy wives’ to their husbands: an often temporary marriage of convenience in which the former trades her looks, sex appeal, and other attractive qualities for the wealth, prestige, and social access her unpleasant toad of a spouse delivers her. A cynic might also point out the parallels between sweating 80 to 100 hours a week under fluorescent lights day in and day out for two years as a Financial Analyst to the occasional unpleasant duties of the marriage bed which a hot young sex bomb must endure with her aging Lothario. Everything has a price, children.

* * *

And this explains why investment banks like Goldman Sachs want to recruit the tippy top of the best and brightest to their sausage factories, O Dearly Beloved: they want trophy employees. They want them not because, as Kevin Roose correctly observes, they need such hyper-accomplished hothouse flowers to program their 50-page spreadsheets and 100-page PowerPoint presentations. I have banged on at length about this before: they don’t. Trophy Kids often make lousy investment bankers, at least over the long term, because my business is a client service business. In contrast, Trophy Kids have been raised from birth to want and expect to be the client.

No, investment banks seek out recruits like these because it makes current employees who interview them feel powerful, important, and validated when hundreds of eager young beavers with looks, accomplishments, and grades better than theirs grovel and squirm to get into their good graces. They want them because Human Resources Department employees—virtually none of whom even got accepted to the top schools they limit their recruiting to—want to create glossy brochures, college night PowerPoints, and website profiles which look like Benetton commercials on steroids: multicultural, multigendered, multicolored paeans to underprivileged Rhodes Scholars who rose from Detroit to Stanford on full merit scholarships and singlehandedly saved the economy of Botswana in their spare time sophomore year. They want them, pace Mr. Roose, not because any client ever bothers to read the junior analyst’s bio on page 97 of the pitch book (they don’t) or because Lloyd Blankfein likes to shoot the shit with 23-year-old Yale graduates about Kierkegaard’s conception of agape love in airline waiting lounges (I venture to say he doesn’t), but because both these audiences like to brag to their wives and Business Rountable buddies they have Ivy League valedictorians lining up dozens deep to carry their golf bags. Trophy Kid employees validate the social status of investment bank(er)s, too.

* * *

And Mr. Roose rightly points out this mutual attraction is fading. What he fails to note, however, is that Wall Street’s perch as the preeminent post-graduation employer of choice for high-achieving college graduates is a relatively recent phenomenon. Finance in the 1980s was a relatively sleepy backwater, as far as ambitious college graduates were concerned. It didn’t employ very many recent graduates, and its reputation was somewhat louche and recherché for conventionally ambitious folk: Liars’ Poker and Barbarians at the Gate, not In Search of Excellence. It accumulated prestige as the industry grew in the 1990s, but it took the tidal wave of money that drove the global financialization of economies in the early- and mid-2000s to really push it to the top of the heap of college seniors’ preferred employers. At that point, the leading banks were rich, familiar to everyone around the world, and hiring thousands of eager young tyros. What was a graduating Yalie not to like?

Individual firms evolved very different reputations over that period, too. I snorted out loud when I read Mr. Roose describe Goldman Sachs styling itself “the thinking man’s investment bank.” It wasn’t too many years ago when Goldman bankers were universally considered hardworking, relatively unimaginative schlubs, B players who sacrificed their health, their marriages, their relationships with their kids, and the chance to make more money almost anywhere on the altar of Mother Goldman in exchange for the brass ring of partnership after twenty years of toil. They weren’t the most brilliant bankers on Wall Street; they were just the most relentless and the best coordinated. Goldman’s effectiveness did not arise from its bankers’ individual intelligence. It came from their discipline and uncanny ability to act in sync like a colony organism. Goldman bankers didn’t need to be smart. They just needed not to be stupid, unlike most of their competitors. And they did a pretty good job.

Recently of course—probably contemporaneously with its entire Executive Committee each earning over $60 million in one year and their former CEO parachuting into the padded chair of the Secretary of the Treasury—Goldman Sachs became the font of all munificence and socioeconomic status for a large class of strivers, including the products of elite higher education. But now the Financial Crisis and the ongoing secular shrinkage of the industry thereafter has taken the bloom off that rose, and the wealthier and more prestigious environs of Silicon Valley are what make the supremely ambitious college senior’s heart flutter. Sic transit gloria.

* * *

And this is okay, as I have written here before. Wall Street is shrinking, and we neither need nor deserve right of first refusal on all or even a majority of the talented, hardworking, untrained young cannon fodder issuing forth from the gates of academe each year. Let Facebook and Google have the trend-chasing social climbers who will do anything to get into whatever profession U.S. News & World Report anoints the best employer this year, so they can preen to their family and friends at Thanksgiving. Investment banks face a bigger threat from the private equity and hedge fund industries, who have gotten big and prestigious enough themselves that they now routinely siphon off a huge number of the most talented hardcore finance junkies who used to staff our engine rooms. Nevertheless, I suspect we will weather this challenge, too, along the way to reinventing ourselves as Investment Banking 6.0.

After all, Wall Street has always found a way to change and adapt. I am sure we will survive the absence of double Catalan-Poetry-and-Neuroscience majors from Princeton just fine, too.

Related reading:
Kevin Roose, Sorry, Wall Street. Paying Young Bankers More Won’t Make You Cool Again. (New York, August 22, 2014)
The Fish Stinks from the Head (July 30, 2009)
A Hard Rain’s Gonna Fall (September 30, 2011)
If the Phone Don’t Ring, You’ll Know It’s Me (October 1, 2011)
You Go First (July 7, 2014)

1 This is not to diminish such achievements, by the way, which demand real commitment, talent, and drive to accomplish, but let’s not kid ourselves Muffy or Bif (or Peeta, Carlos, or Fang) are the second coming of Leonardo da Vinci. It is also worth mentioning that a 3.70 GPA is not that hard to achieve nowadays at Harvard College, where the “median grade… is an A–, and the most frequently awarded mark is an A.” Investment bank recruiters take note.

© 2014 The Epicurean Dealmaker. All rights reserved.

Sunday, August 10, 2014

A Cure Worse Than the Disease

Here be dragons. Who do you want in your corner?
Messenger: “I see, lady, the gentleman is not in your books.”
Beatrice: “No; an he were, I would burn my study. But, I pray you, who is his companion? Is there no young squarer now that will make a voyage with him to the devil?”
Messenger: “He is most in the company of the right noble Claudio.”
Beatrice: “O Lord, he will hang upon him like a disease: he is sooner caught than the pestilence, and the taker runs presently mad. God help the noble Claudio! if he have caught the Benedick, it will cost him a thousand pound ere a’ be cured.”

— William Shakespeare, Much Ado About Nothing

I suppose it does little harm to admit, O Dearly Beloved and Long-Suffering Readers, that this site is shot through and through with what my colleagues across the gaping divide in Sales & Trading would call “talking your book.” Notwithstanding the slings and arrows sent this way by those who can see no redeeming social or economic benefit to my profession, I am proud of what I do, and I firmly believe I offer real value to my clients in return for the shiny simoleons which they so graciously bestow on me, however so (and too) infrequently. This should not really be that surprising. I think there must be few human beings who do not find some sustaining or redeeming value in their daily occupation, even if only as a sop to their self esteem or a dodge against despair, and despite all your protestations I continue to aver that investment bankers are human, too.
If you prick us, do we not bleed?

That being said, I think I have been pretty honest in these pages (and in the conduct of my daily duties, too) that M&A advisory services are not for everyone. There are many reasons a client might consider in deciding whether to employ someone like me, and not all of them make sense or can be justified by any honest calculus. While there are plenty of dissembling shysters roaming my industry intent on imposing their services and extravagant fees on anyone they can convince to write a check, I have always been of the opinion that you make a client happy in the long run by only recommending what is truly beneficial for them, rather than yourself. And often, hiring an M&A advisor is not the best course of action. At least not yet.

* * *

So I am pleased to take this opportunity to respond to an article on private equity and venture capital shill site peHUB, written by a corporate attorney, about things to consider when you are selling a private company. As advertised, it is geared towards the owners of private companies, who generally face a simpler and less complicated set of constraints and obligations than the Boards of publicly held ones. Of its type, it is a reasonably comprehensive and useful guide.1

In it, Mr. Stewart offers the following considerations concerning whether you should hire a flesh-eating investment banker like me when you are selling your private company:

*Do You Need an Investment Banker? Investment bankers can add significant value in an M&A process, but they are expensive. Investment banker fees typically range from 1 percent to 2 percent of the deal value, although the fees vary by deal size and profile. Typical benefits of having a banker in an M&A process include having an agent to (1) advise on market trends and valuation, (2) approach potential acquirers with which the target’s executive management would not otherwise have contact, (3) take the difficult, “bad cop” negotiating positions, and (4) co-manage the sale process with the target’s legal counsel.

Now this is fine advice, as far as it goes, but it omits some pretty important content and nuance that I, your reliable guide to all things overpriced and intermediary, will be happy to impart herewith.

Deferring our discussion on whether M&A advisory fees are in fact “expensive” and if so how for later (I promise), I can first address Mr. Stewart’s itemized reasons for hiring a banker by contrasting them with what corporate lawyers typically do in deal contexts. On the first two points the author is correct by implication: rare (and professionally worrisome) is the lawyer who is concerned with markets and valuation, and even rarer (and in likely violation of her professional ethics) is the lawyer who spends time and energy soliciting buyers for her client. These are tasks for which lawyers are unsuited by training, focus, and predilection, and if the client wants someone other than himself to weigh in on such matters and perform such heavy lifting he needs to hire someone for whom they are suited. The third task is more nuanced, as lawyers are perfectly capable of acting (and often quite happy to act) as “bad cop” (read flaming asshole) in matters properly considered legal, but it is true that bankers adopt this role more naturally and properly in matters business.

The fourth task is generally a bone of contention for lawyers and bankers on a deal, as each usually considers the other an interfering nuisance who focuses on the wrong things at the wrong times. Nevertheless, it is true that a properly run deal process usually starts with the banker running things until definitive negotiations begin between the seller and the potential buyer, at which point the seller’s attorney takes over to control the legal minutiae of drafting purchase agreements and other such trivia. While I am convinced many if not most deal attorneys would be delighted if they never had to deal with another investment banker again, bankers are more than pleased to have lawyers around to handle the boring scut work of transaction documentation and risk mitigation. After all, somebody has to stay behind to argue over semicolons while the banker takes her client off for a nice, celebratory bottle of Échezeaux.

* * *

But Mr. Stewart misses three very important reasons why it usually makes sense for a private company, in particular, to hire an investment banker to sell itself. The first is the fact—evident if an attentive reader were to consider the range and complexity of the tasks Mr. Stewart himself recommends the seller perform—that selling a company is long, complex, and difficult work. A typical sale process, depending on its structure and the number of potential buyers it involves approaching, can last anywhere from four to six months or longer, and that is if all goes well. During that time, company management and owners (usually the same people) must continue to run the firm with the same level of intensity and focus they do normally, otherwise things being things and people being people results will start to wobble or decline, and the intrinsic value and earning power of the business will erode. Yet pre-deal preparation, internal due diligence, and identification and potential communication with selected potential buyers all take a substantial amount of time, and once the deal is launched keeping it humming along and tending to its myriad details and interruptions requires constant daily attention. Virtually no private company of normal size has the extra personnel or dedicated, trained professionals to handle this properly, and, frankly, few private company CEOs or CFOs have the skill or training either, even if they did have the time. (And they don’t. Or shouldn’t.) A skilled sell-side advisor will manage this entire process, and she will arrange things so company management spends as little time as necessary providing the input, attention, and personal presence they must so they can continue to focus on their day jobs. Lawyers just don’t do this sort of thing.

Second, a good2 M&A advisor will bring market intelligence to bear on a sell-side assignment which nobody else—not even a dedicated internal M&A functionary at a large private company—can come close to providing. This is detailed, intimate knowledge of a firm’s potential buyers, based on comprehensive discussions and extensive deal experience and interaction with all of them. As I’ve written before,

You might think that a participant in a particular industry should know the strategic intentions and capabilities of its direct competitors well, but normally you would be wrong. Competitors do not talk to each other directly about strategy because—wait for it—they are competitors. On the other hand, it is the job and practice of any good investment banker not only to develop an informed opinion about how each significant competitor in a space thinks about strategy but also to have done so by talking directly with them, frequently if possible. This is simply not practical for most corporations. Investment bankers are normally far better informed about the strategic landscape of an industry than any one of its participants.

And this knowledge is not limited to other companies, either. A good advisor will also know the likely, potential, and just-barely-possible buyers of her client among the financial sponsor (private equity) community, too. Not only will such a banker know these parties and their own acquisition appetites and capabilities well, she will know which ones of them are complete and utter assholes, which ones tend to fire the management teams they acquire with companies within the first year of purchase, which ones like to bait and switch sale processes by bidding high then whittling down their offer during exclusive negotiations, and which ones are irredeemable bottom feeders.3 This is invaluable information which even the best informed private company in the most incestuous industry has very little of, if any.

Knowing the likely buyers in the private equity world and being able to bring them to the table is critical in virtually every industry sale process nowadays. Not only are sponsors often the best capitalized and most aggressive buyers, they are almost always faster and more professional than the strategic buyers in an industry, because unlike the latter the former do deals for a living. Incorporating this type of determined, fast-moving buyer into a sale process is very helpful even if the seller and his banker think the most likely buyer is a competitor in the same business, because it helps the banker keep time pressure and process discipline on the strategic buyer which might otherwise dissipate. They also usually offer a very different purchase alternative to a private company seller: sell us your business, then come work with us as a (junior) partner to build it bigger so we can sell it to the next guy, and you will get a second bite at the apple. This, in contrast, to the typical offer from a strategic competitor: sell us your business, then either join us as a salaried employee or go away. Many private company owners prefer selling to private equity firms for this very reason nowadays, but they are babes in the woods when it comes to knowing those buyers. A skilled investment banker can offer crucial guidance in this area.

Third and last, surprisingly enough—given the regular beatings good sell-side advisors give potential buyers in M&A deals—most serious buyers prefer private companies to have professional sell-side help engaged. This is for all the reasons cited above: they know most private companies do not have the time, M&A experience and discipline, or negotiating skill to run a tight, efficient transaction process. Buyers want to know the person sitting across the table from them is not procrastinating, flip-flopping on deal provisions or objectives midstream, or negotiating in a disingenuous or irrational manner. Being a buyer of companies is expensive and time-consuming, too, and buyers who are serious don’t like to suspect their time is being wasted. Having a professional investment banker across the table gives them some confidence, because everybody knows no investment banker would allow herself to be hired by a client who wasn’t serious themselves.

And this, at the last, is probably the most compelling reason a private company should hire a financial advisor to sell itself: because that banker will make sure to keep her client disciplined and focused on accomplishing the sale. Privately held companies—for all sorts of good, bad, and indifferent reasons—can often be pretty squirrelly, and nothing will kill a deal faster than a squirrelly seller. After keeping buyers in line, a good sell-side advisor’s principal role is to keep her own client’s eyes on the prize.

* * *

Which brings us to the matter of expense. It is true that, for most deals, the check a seller writes to his investment banker is usually the biggest one crossing the closing table other than the purchase price itself. Even so, one or two percent of the transaction value is arguably a pretty small price4 to pay for someone who has broadened the potential universe of buyers, guided and directed the sale to achieve the highest price and best non-price terms available given the seller’s other objectives, and performed all the tiresome, dirty work of managing a complex sales process for upwards of six months or more. Even more compelling, except for the occasional nominal retainer, the success fee a banker earns upon her client’s sale is just that: a success fee. If the sale fails, or her client withdraws his company from the process for whatever reason, she does not earn anything. Her risks and incentives are completely aligned with those of her client, assuming of course her client really wants to sell.

And that is the real answer: if you’re not really sure you want to sell your company, don’t hire an investment banker. It is our job and embedded in the way you pay us to do everything in our power to close your transaction, including beating you up if you’re backsliding, procrastinating, or otherwise doing anything unreasonable and likely to derail a potential sale. Other bad reasons—like you’d like to play investment banker yourself, no matter how much it costs you in distraction from your core business, diminished transaction value, and fruitless legal and accounting expense—are also good arguments for not hiring a banker, but presumably you are too intelligent to need me to tell you that.

Of course, any good corporate law firm would be more than happy to accommodate you in such circumstances. After all, they charge by the hour.

Related reading:
Matt Stewart, Things to consider when selling a private company (peHUB, July 28, 2014)
Eight Reasons Not to Hire an M&A Advisor. And One Reason to Do So (May 14, 2011)
A Good Start (January 19, 2011)

1 If I’m being honest, as I claim, I think the author is a little lackadaisical about describing the necessary structure and elements of the sale process for a private company. While he gets the major elements right, he is a little slapdash in describing how they all fit together. It has been my experience that a robust and disciplined process is absolutely necessary to keep deals moving at an appropriate pace, to encourage potential buyers to play nicely, and to keep the seller focused on what needs to be done. Without a firm hand on the tiller (and an eagle eye on the clock), there is a tendency for all deals to fritter away into time- and money-wasting nonsense. Given the fact that, of all the players involved in these little dramas, lawyers are usually the only ones paid by the hour, I will leave it to the cynics in the audience to conclude whether this omission was intentional.
2 The perceptive among you will note that my use of “good” here is definitely normative, if not prescriptive. The type of knowledge which informs nuanced, deep understanding of the strategic landscape of an industry is normally only collected by investment bankers focused on and active in that industry. This means if you value and want such knowledge you should search for an advisor from among those who actually have it, rather than the generalist sell-side firms who market themselves as one size fits all. They are prolific sausage factories, it is true, but all the sausages tend to come out the other end looking the same. Just sayin’.
3 Yes, we know who you are. All of you. You, too.
4 Unless you are paying 2% for a billion dollar deal or greater, in which case your banker is a shyster and you are a fool. Or neither one of you cares how much of your public shareholders’ money you waste.

© 2014 The Epicurean Dealmaker. All rights reserved.