Thursday, July 31, 2014

Hacking Wall Street: The Strategy PE Firms Haven't Yet Grokked

The barbarians out looking to rape and pillage on Wall Street seem blinded by spreadsheets created by Harvard MBAs who don't truly appreciate what technology can do to completely change the playing field. Take today's WSJ print story (yesterday's online one: read it here). The relevant paragraphs:
Private-equity firms have all but stopped buying public companies, retreating from a cornerstone of their business as rising stock prices push acquisition targets out of reach.
Public companies taken private accounted for 3.5% of the $89 billion of U.S. leveraged buyouts in the first half of this year, the lowest share on record, according to data tracker S&P Capital IQ LCD. In the first half of 2008, at the apex of a buyout boom, these types of deals represented about 68% of all buyouts by dollar volume.
Instead, private-equity firms are buying companies from one another, a shift driven in part by the relative simplicity of completing an acquisition of a private company compared with a publicly traded one. Transactions between private-equity firms have made up 60% of U.S. leveraged buyout volume through June, according to S&P. That is a higher percentage than the ratio for any full year tracked by the firm, whose data date to 2002.
Net-net, leveraged buyouts (or LBOs) keep getting financed the old fashioned way: A bunch of bean counters say, "I can run this better than you can and bleed off profit to service the debt."

A much better LBO approach would be to find large companies with a bloated sales force and pay for the LBO by firing two-thirds of the sales team and using technology to supercharge the rest to exceed the previous numbers. So what is the technology, grasshopper?

Hint: You can find almost anything you want within 50 miles of Silicon Valley.


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Implementation suggestions for THE MORGAN DOCTRINE are most welcome. What are the "Got'chas!"? What questions would some future Cyber Privateering Czar have to answer about this in a Senate confirmation hearing?