Archive for October, 2021


October 22nd, 2021





Quite a few years ago, the law firm I used was the same as Carl Icahn, where his personal attorney was a partner.


My attorney knew of my M&A client, who was vastly more well-known than Icahn for his takeover antics, including “greenmail,’ which at the time, while not illegal, had no additional costs to the threatened firm, as was later the case. My client bought a few leading firms and hence became one of the wealthiest men in the US.


In fact, I had several meetings with Icahn’s attorney for no reason other than an introduction.


When the news broke of his buying TWA, I was told he ran around his office singing: We bought an airline. We bought an airline.


I called my then attorney to tell him it was a big mistake, from unions to pensions to cyclicality, and other negative risks are thrown in, like fuel costs.


I thought of this and am happy Mr. Icahn learned a lesson he has wisely put to use since, as we see the historic rise in valuation multiples of firms with strong growing real cash returns over its cost of equity. This metric was undoubtedly not the case with TWA, later to file bankruptcy proceedings.


We see our owned firms, from the mega-cap Accenture to the small firms like Watts Water and Quanta rise a multiple of their cost. Yet had they been handed a large merger premium at the time of our cost would have been hailed by investors, and no more so than institutional investors.


Investors and firm executives who do not get the lesson here will always be doomed for underperformance, despite hitting the hot industry or trend from time to time. Investment advisors will see lots of journalistic coverage in the process, and the institutional money will flow, just as it did for the Paulson’s and other hedge fund managers post the credit crisis. Such is now the case with private equity, despite many risks for those firms, including size and transparency.


As the saying goes, all that glitter is not gold, and why our firms rise over multiple cycles without the benefit of fads or large cyclicality.