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davelj
ParticipantI have no idea what “big 5” you’re referring to… but by “top” I mean that this IPO will likely mark the peak in private equity activity (and valuations) and interest for several years, just as Sam Zell’s sale of EOP (to Blackstone!!) probably marked the top for commercial real estate for some time, the Sandlers’ sale of World Savings probably marked the peak in residential real estate, and the massive insider sales by homebuilding executives marked the top for the homebuilders back in 2005. Generally when the smartest people in an industry are selling you probably shouldn’t be buying. There are always exceptions to this rule… but over time it’s better to avoid these situations.
ParticipantI have no idea what “big 5” you’re referring to… but by “top” I mean that this IPO will likely mark the peak in private equity activity (and valuations) and interest for several years, just as Sam Zell’s sale of EOP (to Blackstone!!) probably marked the top for commercial real estate for some time, the Sandlers’ sale of World Savings probably marked the peak in residential real estate, and the massive insider sales by homebuilding executives marked the top for the homebuilders back in 2005. Generally when the smartest people in an industry are selling you probably shouldn’t be buying. There are always exceptions to this rule… but over time it’s better to avoid these situations.
June 16, 2007 at 4:50 PM in reply to: Analyst asks Toll “I am wondering which Kool-Aid you’re drinking?” – resigns #59879ParticipantBlinding glimpse of the obvious: She will end up at a large private equity firm planning on taking advantage of the carnage in MBS, home builders, property, etc. over the next few years. That’s probably her highest and best use (re: the place where she’ll get compensated the most) and she’d be crazy not to take advantage of her circumstances.
June 16, 2007 at 4:50 PM in reply to: Analyst asks Toll “I am wondering which Kool-Aid you’re drinking?” – resigns #59912ParticipantBlinding glimpse of the obvious: She will end up at a large private equity firm planning on taking advantage of the carnage in MBS, home builders, property, etc. over the next few years. That’s probably her highest and best use (re: the place where she’ll get compensated the most) and she’d be crazy not to take advantage of her circumstances.
Participantjustme… There’s another public company that holds a “hodgepodge of privatized companies, hedge funds (re: insurance holdings), debt obligations and more.” Perhaps you’ve heard of it, it’s called Berkshire Hathaway. Yes, some of Berkshire’s holdings are publicly-traded companies, but the majority of its cashflow comes from private companies and other investments (bonds, currencies, etc.). So, the issue that most of Blackstone’s holdings will be private is a huge red herring. (What is GE, after all, but a huge conglomerate of private companies?)
Blackstone makes money in two ways: (1) If its holdings increase in value and it sells these holdings there is a capital gain, and (2) It charges investment banking fees to raise capital and handle M&A on behalf of its portfolio companies. After the IPO Blackstone will have other shareholders that will share in these proceeds. So, to answer your question, yes, there will be revenue and profits (assuming things go well, that is). What do you think the partners have been living off of for the last two decades?
Now, the big risks are two-fold, both of which you touched on. First, like an investment bank, a large share of the profits will go to the employees. If you don’t pay these people, they leave. A big challenge is figuring out the optimal compensation for employees mindful of the fact that you want to keep most of them BUT that you also need to provide your non-employee shareholders with a return as well. It’s an age-old dilemma with financial companies, particularly investment banks (and now these private equity organizations). Second, as you alluded to… when these guys are, in effect, selling a piece of their business, are you sure you want to be buying? Smells like a top to me, although there could be a little gas left in the tank in the short term.
The far better transaction for investors would be to fund a much smaller buyout group that was still on their way to achieving huge success. But that’s unlikely to happen because people are sheeple… they’d rather invest AFTER the big run-up (along with everyone else) and realize low returns than invest BEFORE the run-up (alone) and realize larger returns. As Keynes once observed, “Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally.”
Personally I’m agnostic on the whole issue. But I suspect we’ll look back and see this as a top in private equity – particularly where the huge multi-billion dollar deal companies, like KKR, TPG, Hicks Muse, etc., are concerned.
Participantjustme… There’s another public company that holds a “hodgepodge of privatized companies, hedge funds (re: insurance holdings), debt obligations and more.” Perhaps you’ve heard of it, it’s called Berkshire Hathaway. Yes, some of Berkshire’s holdings are publicly-traded companies, but the majority of its cashflow comes from private companies and other investments (bonds, currencies, etc.). So, the issue that most of Blackstone’s holdings will be private is a huge red herring. (What is GE, after all, but a huge conglomerate of private companies?)
Blackstone makes money in two ways: (1) If its holdings increase in value and it sells these holdings there is a capital gain, and (2) It charges investment banking fees to raise capital and handle M&A on behalf of its portfolio companies. After the IPO Blackstone will have other shareholders that will share in these proceeds. So, to answer your question, yes, there will be revenue and profits (assuming things go well, that is). What do you think the partners have been living off of for the last two decades?
Now, the big risks are two-fold, both of which you touched on. First, like an investment bank, a large share of the profits will go to the employees. If you don’t pay these people, they leave. A big challenge is figuring out the optimal compensation for employees mindful of the fact that you want to keep most of them BUT that you also need to provide your non-employee shareholders with a return as well. It’s an age-old dilemma with financial companies, particularly investment banks (and now these private equity organizations). Second, as you alluded to… when these guys are, in effect, selling a piece of their business, are you sure you want to be buying? Smells like a top to me, although there could be a little gas left in the tank in the short term.
The far better transaction for investors would be to fund a much smaller buyout group that was still on their way to achieving huge success. But that’s unlikely to happen because people are sheeple… they’d rather invest AFTER the big run-up (along with everyone else) and realize low returns than invest BEFORE the run-up (alone) and realize larger returns. As Keynes once observed, “Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally.”
Personally I’m agnostic on the whole issue. But I suspect we’ll look back and see this as a top in private equity – particularly where the huge multi-billion dollar deal companies, like KKR, TPG, Hicks Muse, etc., are concerned.
ParticipantAh, gotcha. My mistake. For what it’s worth, I rarely hear people refer to the “official” name of a university’s business school unless they’re referring to its graduate program. For example, alumni of UC Berkeley’s undergraduate business program normally just say, “I studied business at UC Berkeley.” If they got their MBA there then they might say, “I went to Haas at Berkeley.” That’s what had me confused.
In my opinion, economics is the most “useful” liberal arts major. You can branch out and study plenty of liberal arts but you’ll get a decent grounding in econ, finance, accounting, etc. – that is, something that’s practical – if you want it. Just my opinion.
ParticipantAh, gotcha. My mistake. For what it’s worth, I rarely hear people refer to the “official” name of a university’s business school unless they’re referring to its graduate program. For example, alumni of UC Berkeley’s undergraduate business program normally just say, “I studied business at UC Berkeley.” If they got their MBA there then they might say, “I went to Haas at Berkeley.” That’s what had me confused.
In my opinion, economics is the most “useful” liberal arts major. You can branch out and study plenty of liberal arts but you’ll get a decent grounding in econ, finance, accounting, etc. – that is, something that’s practical – if you want it. Just my opinion.
ParticipantThe goal of an MBA program is not, by and large, to educate future entrepreneurs, although there will be entrepreneurs among the group. These schools are largely in existence to churn out upper-level management types and investment bankers schooled in business “best practices” and, more importantly, “best business jargons.” If you think MBA programs are geared toward entrepreneurs you’re in for a rude awakening.
My experience has been that everyone gets to where they’re going regardless of the schools on their resume. The reason that MBAs from Harvard, etc. tend to be successful is NOT that they went to Harvard – it’s that they were the type of people that got accepted in the first place. They would have been successful regardless. Harvard was just a train stop on their journey.
I was accepted to one top-10 MBA program, Darden at UVA. I turned them down because I thought it was way too expensive. Instead I attended a program that tends to hover between 40 and 50 in the rankings, but they gave me a scholarship. It was still pretty much a waste of time in hindsight, but at least it didn’t cost very much.
So far as I can tell, this decision has had virtually no impact on my career. I might have gotten a slightly better job right out of the program if I had gone to Darden, but 10 years out I’m where I wanted to be anyway, so I think the decision was largely meaningless from a long-term perspective. And, frankly, with hindsight, I think I should’ve skipped business school altogether – it hasn’t provided much benefit.
Having said that, if it’s your goal to work 60-80 hours per week in some mindnumbingly boring upper-level corporate job, or even worse as an associate at one of the large investment banks (count on 90 hours a week in one of these hell pits), then business school might be right up your alley. Someone, after all, has to do those jobs.
To each their own.
ParticipantThe goal of an MBA program is not, by and large, to educate future entrepreneurs, although there will be entrepreneurs among the group. These schools are largely in existence to churn out upper-level management types and investment bankers schooled in business “best practices” and, more importantly, “best business jargons.” If you think MBA programs are geared toward entrepreneurs you’re in for a rude awakening.
My experience has been that everyone gets to where they’re going regardless of the schools on their resume. The reason that MBAs from Harvard, etc. tend to be successful is NOT that they went to Harvard – it’s that they were the type of people that got accepted in the first place. They would have been successful regardless. Harvard was just a train stop on their journey.
I was accepted to one top-10 MBA program, Darden at UVA. I turned them down because I thought it was way too expensive. Instead I attended a program that tends to hover between 40 and 50 in the rankings, but they gave me a scholarship. It was still pretty much a waste of time in hindsight, but at least it didn’t cost very much.
So far as I can tell, this decision has had virtually no impact on my career. I might have gotten a slightly better job right out of the program if I had gone to Darden, but 10 years out I’m where I wanted to be anyway, so I think the decision was largely meaningless from a long-term perspective. And, frankly, with hindsight, I think I should’ve skipped business school altogether – it hasn’t provided much benefit.
Having said that, if it’s your goal to work 60-80 hours per week in some mindnumbingly boring upper-level corporate job, or even worse as an associate at one of the large investment banks (count on 90 hours a week in one of these hell pits), then business school might be right up your alley. Someone, after all, has to do those jobs.
To each their own.
ParticipantI have a better idea. Don’t go to business school. It’s largely a waste of time and money. Or work at a job for a few years and get your company to pay for an Executive MBA so that you’re not paying for it.
Otherwise, just pay the full tuition, don’t bother with the games, and move on with life. In the course of an entire career I don’t think that whatever amount you’re trying to shelter ($60K?) will be worth the time and effort.
ParticipantI have a better idea. Don’t go to business school. It’s largely a waste of time and money. Or work at a job for a few years and get your company to pay for an Executive MBA so that you’re not paying for it.
Otherwise, just pay the full tuition, don’t bother with the games, and move on with life. In the course of an entire career I don’t think that whatever amount you’re trying to shelter ($60K?) will be worth the time and effort.
ParticipantWhat about this guy Matt Battiata (the self-proclaimed #1 real estate agent in San Diego), the realtor who’s got a show on 103.7FM on the weekends. He “guarantees” a sale of your house within 30 days (might be 60 days) or his firm will buy your house. Obviously, there’s gotta be a catch…
**************** From his website***********
Guaranteed Sale Program
We will give you a guaranteed written offer on your home up front and in writing. This will give you the assurance that if your home does not sell in time to buy your next one, we will buy it at the up front agreed upon price. We think you’ll agree, shopping for homes is just more fun, when you know your home is already sold*.*Certain conditions and restrictions apply. [Ed. – Translation: “We won’t be buying your house under any circumstances.”]
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I’d be curious to know how they come up with this “up front agreed upon price.” I’m betting it’s well below current list prices.
ParticipantWhat about this guy Matt Battiata (the self-proclaimed #1 real estate agent in San Diego), the realtor who’s got a show on 103.7FM on the weekends. He “guarantees” a sale of your house within 30 days (might be 60 days) or his firm will buy your house. Obviously, there’s gotta be a catch…
**************** From his website***********
Guaranteed Sale Program
We will give you a guaranteed written offer on your home up front and in writing. This will give you the assurance that if your home does not sell in time to buy your next one, we will buy it at the up front agreed upon price. We think you’ll agree, shopping for homes is just more fun, when you know your home is already sold*.*Certain conditions and restrictions apply. [Ed. – Translation: “We won’t be buying your house under any circumstances.”]
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I’d be curious to know how they come up with this “up front agreed upon price.” I’m betting it’s well below current list prices.
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