Bad news for leverage addicts

June 28, 2007, 5:18 PM UTC
Fortune


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USA Today has just about the happiest article I’ve read in a business section for quite some time. ‘Dark side to leverage’ slows buyouts, says the headline.

I love it. Even if it is 20 years late.

“The fear is that dealmakers could face tougher times,” says Adam Shell, the writer of the piece, going on to quote New York money manager Michael Holland, who says, “The perceived wisdom is it won’t be so easy for private-equity firms to fund their deals with silly money.”

Bad news, then, for deal vampires who suck up loose entities and spit them out as consolidated parts of crazy new corporate monsters. Good news for people who work inside organizations who need to be part of a big deal about as much as they need a goiter.

Let’s say it here. There are two classes in business, or at least two. Okay, maybe there are a lot more than two, but I’m going to talk about two, and here they are:

1. People who work inside a business to create value for investors by producing something: a product, a service, a new idea, or managing people who do.

2. People who make money pushing money around, or helping people who do.

The interests of these two groups do not often converge below the level of ultra-senior management in Group 1, who tend to hang with Group 2 dudes and eventually become them.

Deals, particularly those which are financed by “silly money,” are almost always bad for middle management, that’s for sure, because the “synergies,” “economies of scale,” and other means of defenestrating human life almost always come out of the hides of people who manage people while themselves being managed by bigger people — that is, my friends and yours.

Think of the implications! Companies looking for acquisitions may have to use REAL money to buy them! In order to justify that kind of expenditure, they’ll need a genuine rationale for doing the deal, not just that it’s, you know, cool, and will make all the lawyers, investment bankers and deal jockeys a bundle. What a bummer for them. What are they going to use their MBAs for?

But for we who labor within? How sweet it could be! Some deals may not even get done! Consolidation may slow! People may end up being able to spend more than two years at each iteration of their company! There will be way fewer scary, lengthy meetings over holiday weekends!

We can all go to lunch and know where our cheese is when we return!