Moulton, who was giving the opening speech at private equity’s biggest annual conference, put the boot into virtually everyone involved – buyout executives, PR firms, regulators, politicians and particularly bankers – for the industry’s current malaise. Most people see private equity people as ‘rich, capitalist swine’ these days, he said, and he thinks more political intervention is inevitable.
He also thinks there will be some sizeable failures of private-equity-backed businesses this year, as the industry’s sloppy due diligence comes back to haunt it. ‘Buyouts were done on mythical numbers like pro-forma, adjusted, normalized EBITDA, which almost always turned out to be 20pc higher than they should be.’
This time last year, the Super Return conference was celebrating an industry at the top of its game, with billion-dollar deals taking place on a weekly basis. But now the financial markets are knee-deep in credit crunch, and private equity’s reputation has taken a political battering, most firms are sitting around Mayfair twiddling their thumbs and trying to dream up new ways to spend their money.
The major problem is that the investment banks, who funded the enormous buyout boom with their enormous loans to private equity funds, are just not willing to lend at the moment. Big sub-prime losses have taken a big chunk out of their bottom line, and most are still trying to shift the leveraged loans they made to finance big deals last year.
But as you’d expect, the maverick Moulton isn’t particularly sympathetic, suggesting that they’ve brought all these problems on themselves. ‘They’ve been left holding the baby with unsaleable, overpriced, overenthusiastic debt. They will sell anything to anyone, and they did. If you pay enough bonuses, people will do anything.’ He thinks more write-downs are likely, since trying to work out the true level of exposure is a form of ‘mental masturbation’ (whatever that means).
Since Moulton’s firm focuses on turnaround and distressed investments, he’s likely to do better than most in the downturn. But he can always be relied on to call a spade a spade – so we’re sure he enjoyed giving the slightly sheepish industry crowd a few home truths in Munich…
(Click here to read our big piece on private equity, PE goes into Purgatory, from the February issue of MT)