Lost in the shuffle of Thursday’s news was a little nugget about private-equity firms agreeing to not compete for deals. From the Bloomberg story:
Top executives at buyout firms including Blackstone Group LP (BX), KKR & Co. (KKR), Bain Capital Partners LLC and Carlyle Group (CG) LP assured each other in e-mails that they wouldn’t compete on deals to avoid driving up prices and angering competitors, according to a now public court complaint.
The correspondence was cited as evidence that the firms rigged bids in 19 leveraged buyouts and eight other transactions, including the biggest deals of the leveraged buyout boom, according to the amended complaint unsealed yesterday by a federal judge in Boston.
“We would much rather work with you guys than against you,” Blackstone President Tony James wrote in an e-mail to KKR co-founder George Roberts in reference to the Freescale Semiconductor Ltd. (FSL) buyout, according to the complaint. “Together we can be unstoppable but in opposition we can cost each other a lot of money.” According to the complaint, Roberts replied, “Agreed.”
The extensive Bloomberg story goes on to chronicle many high-profile, expensive deals and their funding in detail. It devolves into a deal list. The story does mention the suit is being filed while private-equity is fighting for its reputation as Mitt Romey, co-founder of Bain Capital, runs for president.
Ok. But really, who cares? There’s absolutely nothing relatable about the story for the average person. That’s not Bloomberg’s core audience, but you’d think that somewhere in there would be a mention of WHY this is bad.
The reason, I think, is that pension funds have billions of dollars invested in private-equity firms like KKR, Blackstone, and Carlyle. That’s money that ultimately belongs to firefighters, police officers and teachers. It’s hard to think about not getting the best deals for pensioners.
According to the Associated Press (via WSJ):
A complaint released Wednesday by a federal district court in Boston details email exchanges between executives at Bain Capital, Blackstone Group LP, and other private equity giants. It’s part of a long-running lawsuit charging the firms with rigging bids for 19 buyouts during the wave of blockbuster deals before the financial crisis.
The plaintiffs in the class-action case are former shareholders in the companies bought by the private equity firms. Their lawsuit names nine of the largest private equity firms along with Goldman Sachs Group Inc. and JPMorgan Chase & Co. as defendants.
The plaintiffs say the firms colluded in some of the largest private-equity deals made between 2003 and 2007, such as buyouts for Neiman Marcus, Toys “R” Us and the hospital chain HCA, among others. They argue that the firms joined together to suppress competition and lower prices.
Blackstone spokesman Peter Rose described the complaint as far-fetched and a “fabrication.” Rose said the plaintiffs have imagined a conspiracy “involving hundreds of investment professionals, 11 firms and 27 transactions” lasting years. The emails, Rose said, are “wrenched out of context.”
Private equity deserves the benefit of the doubt. And it’s an important point to make that none of the pension funds are part of the suit. That means they’re likely happy with the returns they’re receiving for their investments, which is the whole point.
It’s hard to complain when you get what you want. But I am surprised that journalists aren’t immediately pointing out the link between regular citizens and private equity. It would make the story much more relatable to the average person and would help them understand something about their investments.
Fierce competition in business journalism for the attention of sophisticated readers is causing some outlets to forget that there’s a broader audience out there. Most people need to feel connected to fully engage in a story. This is something that some business news outlets should remember.
