Sunday, November 18, 2007

Wiggle room

The liquidity crisis fueled by subprime debacle and the big write downs by Investment banks have this unexpected fallout – Private equity firms reneging on deals.

For the last few months, private equity firms have repeatedly broken their word when breaking a deal, trying to place blame on big, bad investment banks that they said were holding them hostage by threatening to withdraw financing.

It was an easy narrative to follow, but it obscured the truth: Private equity firms, widely hailed as the “smart money,” made some lousy deals in the second half of this year, and some are now having a bad case of buyer’s remorse. They have been more than happy to break the deals and let the banks be the fall guys.

To be fair, the banks cut some pretty lousy deals themselves and have been applying pressure to their clients. But if you have spent time with buyout bosses, you know it’s hard to pressure them into doing something they don’t want to do in the first place.
But as Dan Primack says here, if the same deal revisits, the bankers will be bending over their back to do it if the fee on offer goes up. He says “Revenge is sweet, but an extra $100 million is sweeter”.

Yeah, aren’t bankers coin operated...? You bet.



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