8 Points on the analogy of "Trump Partners LLP acquires USA Plc."
I love this brilliant article by Tom Brammar on the comparison between Trump Partners LLP Private Equity ‘s take over of USA Plc. he does have a habit of thinking out of the box! below is a repost of my comments on medium:
My 8 Points on Trump Partners LLP acquires USA Plc.
On top of the leverage comment, I would like to suggest to think about a few things:
- ) most LLP has money (partly theirs, but majority of their capital are from other LPs like pension funds, family office, sovereign wealth), Trump is not rich without leveraging his vapourware “brand” (personally, nor at state level, US has the most ‘debt’ worldwide): see graph above & suggest 2017 Perspective report pdf by Private Equity International. Hence not likely any sane GPs will buy US as is, in distress maybe as long as there is rule of law & happy people.
- ) Tax incentive for having ‘debt’ not same at Government level. [ Trump is now playing at geo-political level now, Tax Incentive nationally for Carried Interest might be important but positioning US competitively in the international chess board is even more paramount, does he & his team play chess, or GO?]
- ) “Rule of law” [given latest Exec Orders, god forbid, Gene Sharp’s proven strategy in all middle east from “dictatorship to democracy” might be turned back on US! Indeed, I challenged politely Eric Schmidt once at his event in London when he mentioned his goal was to bring democracy to China, my comment was that it would bring Civil War, we might be seeing Civil legal war now in US, hope it will not go further! Consequently, just like dealing with ‘developing countries’, pricing of the assets of USA Plc will be dramatically revised down the more TrumpishSurrealExecOrders we see.]
- ) Risk free rate & Trust worthiness of US government (not only its debt/ratings of bonds/debts but diplomatic ties) [seems all are likely to go down, hence a positive ‘exit’ seems rather remote, if the Trump LLP take over is completed (as it only just started with other people’s staff)! ] Is any country in the world are really risk free any longer?
- ) valuation of the asset(s) due to uncertainty from international partners (for trade or from FDI perspective) There is as ever a very timely blog post from my friend the brilliant finance professor Aswath Damodaran (he predicted the dot.com bust!), who talked about valuation of debt laden companies that is a must read/watch.
- ) Exits: Who might want to buy the asset stripped, cash flow extracted, wild wild west financial hub (if Dodd Frank which was already watered down get further castrated)? it will only spell opportunity for other financial jurisdictions that take long view, no doubt given the Brexit, France/Germany or even Switzerland would definitely love to have a ‘Go’!? Even if other countries could afford it, because of lost aversion (Kahneman, Sokol-Hessner) and US dollar being the de facto reserve currency, many will have no choice but to take risk even it might be ‘chasing future losses’ (given no other choice of risk free asset available!). In 2017 however, given the RMB now in SDR, some might cut their losses soon, let along bailing Trump out.
- ) Presidency of USA is not only a zero-sum/short-term transaction, goal must not the deal (a PE deals are not great for the company itself) but ever-lasting ‘good impact’= as your article elude to, PE deals (other than infrastructure are veered towards short term (goal to extract value within 5/10yrs within the fund structure of 10+yrs). As reported by my Prof Scott Moeller below (& in his book M&A Why Deals Fail and How to Rescue Them) 50% of M&A deals fail (due to Planning, Comms & People, which Trump team are all weak of!), track record of successful deal making real life does not bode well AFAIK (the Trump ‘dealmaker’ fable is debunked eloquently by Tony Schwartz of “The Art of the Deal” on NewYorker’s DONALD TRUMP’S GHOSTWRITER TELLS ALL article.)
or see it on youtube: http://stfi.re/oekpbgd
8. ) Trump & Team should be playing at the Trillion dollar level and think about medium+long term and how he can really FIX the economy, finance, jobs+investment (unlock the incentive to ‘keep cash’ but invest in the right part of the economy) but I would be reluctant to tell him the answers (as no doubt he will take all credit!) Prof Clay Christensen highlights perfectly in his ‘Capitalist’s Dilemma’ slide & lecture of problems US (& RoW) is facing, see:
Brilliant analysis by Prof Clayton Christensen, Harvard Business School on world's economic engine…
here is my slightly long & badly written blog post ‘challenge’ to Paypal Mafia (Thiel, Reid or Omidyar inc.) to fix the financial market in 2014. Funny that at his Zero book launch in London, Peter Thiel mentioned about there was no bubble in Tech but Government bond IS the bubble market back in 2014 (hence he kept 3/4 of his net worth in Tech stocks), guess that relates back to my point 4.) above! see 51mins into the talk: https://youtu.be/kOgFyyYPoVA?t=51m42s
or click through here if the above embed does not work: http://stfi.re/yxjezzb
I rest my case if Peter Thiel the Trump’s Tech advisor also decide that US Government bond/debt is the biggest bubble! Who will buy it (especially now Trump leads it & he is p*ssing off China & others who leads a new AIIB & now given Trump’s short term nationalistic stance, even Xi Jinping delivers robust defence of globalisation at Davos)?
This is, therefore a case of Autonomy and not Skype (in Tech speak), a long story to unfold (many litigations, personal bankruptcy on the card?) even when he leaves the office (whether willingly or via impeachment).
Just hope USA’s residence and rest of the world’s population do not get hurt meanwhile, and especially our Mother Earth will be safe from his unilateral blindness & decisions/policies towards probably wrong actions taken relating to climate change.
Love to hear your's & other’s thoughts!?
humbly,
@GarethWong
I do not blog often, but cannot resist to include something light, probably much more interesting than above, MUST WATCH, Boom! Jon Stewart Reads Trump's Next Batch Of Executive Orders
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