- The Washington Times - Saturday, June 2, 2007

I know nothing about finance or big business. I live paycheck to paycheck, I will never own property of any significance, I will be paying debt until the day I die.

But I have an opinion about “private equity” firms. They scare me. And they’re popping up all over. They bought Chrysler, they’re buying the company I work for, they’re buying Bausch & Lomb. And I’m afraid of what that means.

Not that I’m an expert, not that I have any inside information, not that what I think amounts to a hill of beans. But I understand this much: People invest in something hoping to get something back.

This isn’t philanthropy we’re talking, this is business. And what we have, as a result of a (never reported in the press) booming Bush economy, is a whole bunch of people with a whole lot of money. Billions and billions of dollars.

And they’re trying to find places to put that money so it will make them more money. A lot more money.

See, I figure these various private capital groups want more than the stock market can bring them. They want a better return than that of bonds or futures or anything else. So they’ve come buying companies, expecting, like I said, very high rates of return.

Why do I think that? These people want their investment to outperform other investments. If other investments would pay more, they would put their money there. But they’re not. They’re buying companies.

That leads to the question: What do you do to a company to get it to return lots of money? Typically, you gut it.

You squeeze every bit of juice out of it, until it’s just about ready to collapse in on itself, then you sell off its parts. It brings you a mammoth return in relatively few years. Or course, it absolutely messes up the lives of a great many people along the way, and it takes the company and turns it into a door mat. At least that’s what I’m afraid of. Because no other scenario makes sense.

If you’re a young person, and you have a bundle of money, you might buy a company and spend your life building it and making it grow. If you’re a young person, looking for a life’s work, that makes sense. In that case, taking the company private, putting it under the ownership of a person or a group, is a great thing for the company and its employees. But that’s not the case with these investment groups.

No offense intended, but they’re not typically young. Typically they’re middle-aged people who want not a career but a payout, and they want it in about five years or so, and it had better be big.

And you don’t get that by growing a company, you get that by raiding a company. You look at the organization chart — often times knowing nothing whatsoever about the specific industry involved — and you use your best Harvard MBA skills and decide what doesn’t need to be.

You lop off jobs long distance, demanding higher returns and leaner payrolls. You introduce what you believe are efficiencies, but are really dysfunctions overcome only by the heroic efforts of the few remaining employees, motivated by fear of losing their jobs.

And often, these cutbacks and downsizings come in the wake of earlier cutbacks and downsizings. See, the corporate managers who will become millionaires in these deals try to make their companies appealing buyout targets by artificial profitability. By lashing the dogs a bit harder and feeding them a bit less you get a period of higher productivity.

This typically precedes a crash, but that’s not your worry today. Today you make the company look like a bigger steal than it is and when the rich boys take it private you get your golden parachute and the next MBA comes in with a little bit longer lash and an even smaller conscience. That’s what I’m afraid happens.

And while I believe in capitalism with all my heart, I sometimes wonder if maybe car and optical companies should be run by car and optical experts, people who understand those businesses through and through.

Increasingly, companies become “properties” and are reduced to numbers on a page, when in actuality they are so much more than that.

The people who bought Chrysler said that, by taking the once-proud company private, they could free it from the tyranny of the quarterly earnings report and focus it on the long view. Hopefully they meant what they said.

Few things have been more fundamentally ruinous to America’s companies than the need to put all decisions and objectives in a three-month time frame. The inability to have long-term priorities and long-term plans has been devastating.

And hopefully these investment groups can focus companies on long-term vitality and growth. But I don’t always get what I hope for.

And investors looking for a high, fairly quick return have no interest in long-term vitality and growth. They are looking to loot and pillage and move on to the next victim. At least that’s the way it looks to me.

I believe in capitalism. I believe in our great American companies. I believe a vital corporate community is the very foundation of our national prosperity. Business is the country’s friend and should be supported and encouraged.

But businessmen should be men of honor and conscience, constrained by a sense of right and wrong and decency. Some past corporate trends — junk bonds and leveraged buyouts being two of them — have not lived up to that standard.

Let’s hope the wave of private capital firms does. Let’s hope this portentous new trend enlivens these companies instead of looting them. Let’s hope it enriches more than just the investors. Let’s hope it helps American business begin the climb back to greatness. But like I said, I don’t always get what I hope for.


Commentator and talk show host in Rochester, N.Y. See BobLonsberry.com.

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