Point taken on the tax rate making these deals undoable. I guess if you sit back & think about it, very few of these deals made any sense through the years, so if you’re doing them just because there’s a tax advantage, it’s probably not a sound strategy for putting the deals together.

The bankers that structured them would argue differently, I know. But at the end of the day, can you tell me a deal like Hilton being taken private by Blackstone really had a value add? No, not really. It just Blackstone a lot more hotels to work with. But who wants to be a Dubai World subsidiary with Cracker Barrels (I’m talking about you, Hampton Inn.)?

Cheers.

I take your points. Would you like to expand on them in light of subsequent responses?

Thanks for reading and commenting.

You have a real way with words (I notice these things). If you coined “three prongs of the trident…” my hat is truly off to you.

You mention plutocrats and serfs, which reminds me of the Gettysburg Address. “Of,” “by” and “for” the people, our republic is not. Reining in corporate influence and their ability to outright purchase legislators tops my list of constitutional reforms.

Thanks for reading & responding. Looking forward to more from you in the future.

I take your point about getting deals done without the tax code, especially with states and locales giving economic development incentives like the money was free.

As for risk aversion, I think Mr. Kosman’s point is that the manipulation of the tax code canceled out what would normally have been a deal-breaking risk premium on most of these transactions. Once again, the tax payer, who has no voice, foots the bill for financial folly.

Looking forward to your continued comments on this and other posts. (And good luck with that CFA).

The valuations that were used in pricing these deals must have come out of some text they must have used at Hogwarts because they didn’t make sense to me 3 years ago. Whether you wanted to use Debt/EBITDA, Debt/CF, the valuations sounded out of whack and the growth forecasts assumed growth rates that simply didn’t exist.

Which leads to my next point: leverage. With interest rates at all-time lows globally (1% rates here & in Europe, 0% in Japan), there was a lot of cash that was just begging & pleading for as much excess yield as it could find. So if a CLO was getting shopped around and offered an extra 200 basis points in yield on what everyone thought would be “safe deals” (I never remember these things as being that safe), everyone would jump on with no questions asked.

The “scary stuff” you point out is bound to get here, it’s just a question of when. Those horses were out of the barn during the credit boom, so closing the door now is a tad late. Plus, you can always find a way to do these deals, taxes or not. If the cost of financing is cheap enough and if the legal structures/jurisdictions used have more flexible tax codes, you can find a way around most (if not all) of the reforms.

Maybe I’m just more risk averse than a lot of folks out there, but I called these things “dead men walking” deals as they were announced because I just couldn’t imagine doing them for the prices they paid and the required cost saves. Maybe we just need some attitude adjustments when it comes to taking risk.

The tax structure was radically changed back in the late ’70s and throughout the ’80s, purposely designed for debt leveraging, i.e., interest tax deductibility and providing tax advantages to structured financing of securitized pools — that is further encouraging the self-destructive force of securitization.

Those leveraged buyouts (LBOs) greatly enrich the pirates of private equity, while destroying employment, productive companies, and future opportunities for the American worker and innovator.

The three prongs of the trident, leveraged buyouts, labor arbitrage (the offshoring of American jobs and foreign job creation by American-based transnationals) and securitized financial instruments of mass destruction, are the force for the disassembling of the American economy.

Great for the Plutocrat Class, while turning the rest of us into the Serf Class.

With the Bush/Obama Administration appointments (that is, the recent appoints with Brand Obama in place) principally coming from either Goldman Sachs and/or Private Equity, this nation is truly in a world of trouble.

And while I support Mr. Kosman’s predictions, I would also state that private equity misdadventures make up a portion of the meltdown already, with those $633.8 billion of strucutured loans from the top banks (GAO-08-885 Private Equity report) along with the investments from the top pension funds (80% of those with greater than $5 billion in assets) going to those private equity funds of funds.

Upshot: The publication never invested the requisite captipal to create an Internet presence, even a novice observer could see the need for this investment around 1997, as the Internet appeared as a superior information channel for help wanted, auto, and Ebay-ish sales of personal property, not to mention personal ads.

The second LBO group has created a huge loss in value, essentailly reducing the value of the business by 65%.

I really think a non-LBO buyer would have managed the company for the long haul with much better results.