Barbarians At The Gate: 30 Years Later

Elizabeth Warren, one of the leading candidates for the Democratic presidential nomination, is bearing down hard on private equity.

It’s not the first time the private equity giants – often referred to as LBO firms, as in ‘leveraged buy-outs’, and increasingly known by the sanitised term ‘sponsors’ – have taken heat. It was one of the attack lines in 2012 that helped Barack Obama sink Mitt Romney, who made his fortune at Bain Capital. This is different. Warren’s proposal is smart politics because it’s utterly radical and yet “to a non-financial audience, it just sounds so reasonable.”

Most notably, Warren proposes to make PE responsible for the debts of its portfolio companies.

To understand the force of this change, consider a typical buy-out deal. ABC Partners buys XYZ Plc for £1 billion. ABC forms a new company, Alphabet LLP, to buy XYZ. But Alphabet won’t just use ABC’s money for the acquisition: in fact most of the £1 billion will be borrowed from banks and institutional investors such as pension funds. If XYZ underperforms in future years, Alphabet LLP won’t repay its creditors and in theory ABC won’t get its money back either*. But crucially, ABC isn’t on the hook for Alphabet’s debts. If it were, ABC would have to hold back millions of its assets from being put to work on other deals – just in case the debts of XYZ need to be made whole. In practice this would kill many PE companies and force those remaining to become conglomerates, taking on leverage at a corporate level and funding its loss-making subsidiaries until they can be improved, sold or closed.

It’s possible none of the will happen even if Warren is elected President and Democrats take full control of Congress. Ending limited liability, if that’s what the final proposal really does, is a big deal and Wall Street can afford lots of lawyers and lobbyists to say so.

For me this debate flared up at an opportune moment. I’ve just finished Bryan Burrough and John Helyar’s Barbarians At The Gate, their 1989 fly-on-the-wall account of the bloody battle between Ross Johnson and Henry Kravis’s KKR to take over the enormous biscuit and tobacco company RJR Nabisco. It’s one of the foundational texts of business journalism and was a source of increasing embarrassment that I hadn’t read it. The “Barbarians” line is attributed to Ted Forstmann, a rival financier who loudly denounced KKR’s use of junk bonds to finance its mega-deals.

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What lifts the book to the status of a “Classic Business Thriller” advertised on the dust jacket is the contemporaneous level of detail illustrating the interplay between rival suitors for RJR and their pumped-up Wall Street advisors, moved by ego as much as financial self-interest.

Barbarians is journalism, it doesn’t dwell on doctrine, but it’s striking how little the generic debate about private equity has moved on in three decades. Burrough and Helyar wrote then, “Everyone knew LBOs meant deep cuts in research and every other imaginable budget, all sacrificed to pay off debt. Proponents insisted that companies forced to meet steep debt payments grew lean and mean…Critics of this procedure called it stealing the company from its owners and fretted that the growing mountain of corporate debt was hindering America’s ability to compete abroad.”

* I feel obliged to note the conceptually separate controversy that arises when ABC Partners, whose executives also control the decisions of Alphabet LLP, pay themselves handsomely in management fees or dividends before Alphabet concedes it can’t repay creditors after all.

Why we need hypocrisy, mendacity and ambiguity

Reading a column by Dominic Cummings in the Times last week reminded me of a passage in a book I finished reading the week or so before that: Evgeny Morozov’s To Save Everything, Click Here.

Morozov’s is a spirited polemic against ‘internet-centrism’ and ‘solutionism’, the idea that the human condition – not to get too grand about it – can be perfected through the innovative and enthusiastic application of ever-more sophisticated technology. Or at least I think so.

Cummings, a former advisor to Michael Gove, actually makes a familiar argument. We are badly governed because the state is badly managed. Too many “Oxbridge egomaniacs with a humanities degree and a spell as a spin doctor” and too few expert managers. Aspirant leaders must “have the skills and experience of managing complex projects.” Government should be open in the extreme, managerial and where at all possible automated.

And who would disagree? One of Cummings’ worries, I take it, is that our political elite spends too much time blathering, blithering, bickering, backstabbing, backtracking and b*ullshitting.

Who would disagree? It’s fun to try, though, for Morozov attempts something like it.

“We need to challenge not just the idea that the truthfulness of a statement can be boiled down and evaluated….but also the notion that hypocrisy, mendacity, and ambiguity are ruining our politics. In extremely large does, they certainly do; but in small doses, they are more virtues than vices. They enable our political process to function.”

Take ambiguity. Morozov favourably quotes political scientist Deborah Stone:

” “Ambiguity facilitates negotiation and compromise because it allows opponents to claim victory from a single resolution,” concludes Stone. Demanding that our politics gets more precise….forcing [politicians] to be specific to the point that they would rather say and do nothing at all – all of this is unlikely to improve the state of our democracy.”

Even if I’ve straw-manned Cummings just a little, I think that’s a relevant rejoinder to his argument. If a James Dyson ran the Department for Business, Bill Gates ran Health, and Michael Wilshaw – a Gove favourite – ran Education, all measured according to the most sophisticated performance indicators possible, then we might – *might* – become more expertly government. But first Cummings has to explain why ‘expertise’ in government is the only, or most important, goal.

Review: The Politician’s Husband

Written for Cherwell in May 2013.

I ended up really enjoying the series, though at only 3 episodes it rushed a bit too much. The idea, I figure, was to avoid an abrupt ending, but as a result there wasn’t enough time for the characters to develop and for the audience to properly empathise with them. A longer series would have been more satisfying.

Review: Peep Show Series 8 (first half)

Reproduced from Cherwell

Like all the greatest rock stars, the best British comedic dramas have historically died young: Fawlty TowersThe Office; even Monty Python’s Flying Circus properly lasted only three series. Peep Show fully deserves to number among these classics, but, now bucking the trend, is in its eighth series. With the show, and its characters, now almost a decade older than when it all began, you could be forgiven for expecting a certain level of classiness or maturity: Mark (David Mitchell, who Cherwell interviewed earlier this year), after all, now has a child and has asked his long-term girlfriend Dobbie (Isy Suttie) to move in, turfing Jez (Robert Webb) out.


But, thank goodness, nothing has become sacred: even last rites. Mark seethes as Dobbie tends to the sickly Gerard (Jim Howick). One evening Mark manages to persuade her not to rush to his bedside – “But Dobs, it’s the Apprentice tonight, I think there’s going to be someone we both really hate” – and, hilariously, Gerard kicks the bucket. Corrigan remains a master of the acutely awkward observation, the cynical retort and the withering put-down; and what a relief it is that while the material feels so fresh, the central conventions of the show have survived intact: it is comforting to see Jeremy’s inane reasoning (“I’d make a great therapist. Look at all the pussy I bag”) and Mark’s sardonic wisecracks (“Is that a quote from Freud or Jung?”) continuing to manifest in their characteristically outrageous fashion.

Jesse Armstrong and Sam Bain, the writers of Peep Show, deserve medals for crafting a script that manages to place authentic, pitch-perfect, toe-curling awkwardness into poetry: “I never stone alone; I’m just high on pie”, is how Mark declines a spliff. A useful one to remember. All that said, the format is predictable. Jeremy says and does stupid things; Mark pursues eminently sensible goals, but typically fouls up just as badly as Jeremy. Jeremy remains an infant in a grown man’s body: a perennial failure with occasional flashes of jealousy. Hearing that Mark has published a book (albeit with the suspiciously named ‘British London’) Jeremy panics: “What next? He’s found a director for his film? A builder for his cathedral?” Mark loves to berate Jeremy for his failings, but in reality is consumed by a similarly bitter pettiness; acutely conscious of his own under-achievement, Mark patronises Jeremy and jealously curtails even Dobby’s career ambitions.

You sort of know how this is going to unravel just by skim-reading the subtext. But ultimately it doesn’t matter. Peep Show revels gloriously in drudgery; even its most colourful characters lack charisma, instead generating in their comic interactions a remarkable anti-charisma, which itself forms the gravitational centre of the show’s charm and intrigue. Mark and Jeremy can always be trusted to get over their mutual loathing because, after all, the only thing animating the lives of the ‘El Dude’ brothers is each other. The fruits of that relationship, not just the gags, are surely the reason the show has lasted so long. The viewer remains as wedded to the central relationship as Mark and Jeremy are to each other: we remain oddly charmed by how totally aware they are of the other’s naivety and haplessness, while apparently blissfully ignorant of their own. And how deeply they know each other’s quirks: Episode 2’s depiction of Jeremy discovering Mark executing the ‘Velvet Spoon Routine’ (avoiding the obligation of making him a cup of tea) is a highlight.

“I hate living with him, but I never really want it to end,” Jeremy describes living with Mark. In a similar way, I’m not quite sure why I keep watching Peep Show. Its pulling power is akin to popping bubble wrap: it all seems slightly mundane and a little pathetic but somehow instils a deep affection in me. Series 8 has moved to Sunday night from the usual Friday slot, a shrewd move I think: the essence of Peep Show chimes much better with the Sunday night mood: dour, reflective, lazy, mercurial. Series 8 has got off to a cracking start. The next episode sees Jeremy move out of the flat and in with the steadfastly drugged-up Super Hans. Perhaps they should move this one back to Friday.