Reviewed by David M. Kinchen
With one of their own — Mitt Romney — running for President this year, it was inevitable that private equity firms like Bain Capital that he co-founded would be dissected by business journalists. The latest look at private equity firms that own just about everything in sight is Jason Kelly’s “The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything” (Bloomberg Press, an imprint of Wiley, 232 pages, notes, index, glossary, $34.95).
For those who’ve been in a cave for a year or more, Mitt Romney, the GOP candidate, takes pride in his business expertise that led to the creation of Bain Capital, the private equity firm he co-founded in Boston in 1984 with partners from Bain & Company, a consulting firm.
Kelly, a reporter for Bloomberg News, makes the case that private equity firms like Bain, TPG, Carlyle, KKR, Blackstone, etc. are the new millennium’s iteration of the conglomerate: “a holding company controlling a sprawling set of companies in disparate industries” that he says went the “way of the dinosaur as companies found it difficult to convince investors that there was value that was even equal to the sum of the parts.” Kelly notes that a few conglomerates survive, including the Tisch family’s Loews Corporation, “which owns everything from hotels to oil fields to insurance companies.” And of course, there’s the most famous conglomerate of all, Warren Buffett’s Berkshire Hathaway.
Kelly notes that “private equity in its early days was in part a conglomerate dismantler, a solution for those wanting to disassemble empires.” Ironically, he writes (Page 108): “The size and scale of private equity during the past decade has turned them into conglomerates in their own right, each of the biggest firms owning a wide range of companies from toy makers to refineries to amusement parks.”
The average reader — even one who’s read many business books — will have a hard time distinguishing between a traditional conglomerate and, say, Bain Capital, which since its inception it has invested in or acquired hundreds of companies including AMC Entertainment, Aspen Education Group, Brookstone, Burger King, Burlington Coat Factory, Clear Channel Communications, Domino’s Pizza, DoubleClick, Dunkin’ Donuts, D&M Holdings, Guitar Center, Hospital Corporation of America (HCA), Sealy, The Sports Authority, Staples, Toys “R” Us,Warner Music Group and The Weather Channel.
Kelly explains how private equity firms began as a cottage industry as conglomerates were dying and splitting up in the 1980s. In “The New Tycoons” he:
> Explains how two cousins, a restless former Carter administration policy adviser, a pair of out-of-work investment bankers and a lawyer fighting a highway extension in Texas all used the same basic idea to become billionaires.
> Explores how a long-secret industry copes with the scorching spotlight created by Bain Capital founder Mitt Romney’s quest for the White House. Details the response to political pressure about their tax rates, accusations of rampant job destruction, and the rigors of answering to public shareholders.
> Goes inside KKR’s $7.3 billion deal for Dollar General, detailing how a highly sought CEO zeroed in on everything from how the diet soda tasted to sales of toilet seats to revive the retailer.
> Details private meetings with the world’s largest investors, including some the biggest U.S. pensions, as the private-equity managers woo them for new commitments, those investors balk at their fees, and the workers at private-equity controlled companies lobby for a voice.
This is the second book I’ve read and reviewed this year on what makes private equity firms tick. Back in February, I reviewed “King of Capital” by David Carey and John E. Morris, published by Crown Business, a trade paperback updated from a 2010 hardback edition, a book Kelly references in “The New Tycoons”. (for my review of “King of Capital” click: http://www.huntingtonnews.net/22121
Jason Kelly demystifies the complex world of private equity by telling the stories of the top firms and their leaders. The book details how their role as investors, owners, and employers has put them at the center of our lives. “The New Tycoons” is very readable, accessible for the general reader. I’d make the same assessment of “King of Capital” and a 1990 book that poked and probed KKR and started the interest in private equity financing: “Barbarians at the Gate: The Fall of RJR Nabisco” by Bryan Burrough and John Helyar.
Kelly conducted in-depth, exclusive interviews with private equity leaders, including Stephen Schwarzman, David Rubenstein, David Bonderman, Henry Kravis, and others, With on-the-ground reporting, personal observations and richly drawn anecdotes, Kelly takes the story far from Wall Street and into companies controlled by private equity, examining how the business affects us as workers and taxpayers. With the presidential candidacy of former Bain Capital CEO Mitt Romney, and the industry’s deepening influence on Main Street, understanding private equity and where it’s headed is more important than ever.
Kelly even managed to find a Texas union leader, Gary Beevers of the Steelworkers (a union I belonged to when I worked at Youngstown Sheet & Tube in Lake County, Indiana, before becoming a reporter in the mid-1960s) who applauds Blackstone and Tony James, the designated successor to Stephen Schwarzman. Beevers praised Blackstone and its partner First Reserve for reopening a former Valero refinery in Delaware City, Delaware. Most labor unions are hostile to private equity firms, saying they are job destroyers and are anti-union, but pragmatic Beevers said the private equity takeover of the Valero refinery resulted in the creation of 500 full-time jobs and 250 contract workers. Blackstone and First Reserve pumped $450 million into renovating and updating the refinery — at a time when Big Oil was closing refineries.
Rather than demonizing private equity firms in the take-no-prisoners manner of Rolling Stone’s Matt Taibbi, Kelly says we should take the pragmatic approach of union leader Beevers and learn to deal with them; private equity firms aren’t going away, so deal with them we must.
About the author
Jason Kelly is a New York-based reporter at Bloomberg News primarily focused on the global private-equity industry as part of Bloomberg’s Investing team. He joined Bloomberg in 2002 as a member of the U.S. Technology group, where he covered companies including Intel, Motorola and Texas Instruments. A frequent contributor to BloombergBusinessWeek, Bloomberg Markets magazine and Bloomberg Television, he’s written about topics from artificial intelligence on Wall Street to the aftermath of Hurricane Katrina. Prior to Bloomberg, Kelly was the editor ofdigitalsouth magazine, an Atlanta-based publication focused on venture capital and start-up technology companies. He started his career at the Atlanta Journal-Constitution as part of the newspaper’s Olympic coverage team. Kelly is a graduate of Georgetown University.