Not one to mince words, KPS Capital's Michael Psaros offers a ...

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 78THE PULSEThe PulseAs taxpayer capital makes its way into the banking system and into other cornerstoneindustries, will a corollary be increased protectionism? What will be the impact on M&A?As taxpayer funds find their way into theprivate sector there should be some motivationfor these taxpayers/shareholders to support theinstitutions receivingthe benefit.Having saidthat, no intelligentperson orentity throwsgood money afterbad. Unlessthe institutionsbeing supportedMichael D. Sharkeychange theirways and operatemore efficientlyand safelyor producemore valuablegoods or services,history will repeat itself and more supportwill be required.I find it fascinating that the same economiststhat have been supporting free marketsfor all these years are suddenly advocating suchbroad sweeping government intervention. It isamazing what the threat to ones’ personalwealth will do to ones’ beliefs. Of course no onewants to see us slip back into the dark ages.— Michael D. Sharkey, President,Cole Taylor Business Capital—————————When a mezzanine lender tightly wrapscovenants around the borrower and takes warrantsfor the upside, we don’t call that protectionism.We say its part of the cost of doing business.Why should we expect anything differentfrom the government? After all, the guys responsiblefor putting the TARP funds to workare experienced investment bankers, right?Unfortunately, political motivations causelegislatures to seek protection beyond what aprudent business person would want. It is humannature - thepoliticians needto be able to sayto their constituentsthatthey extracted“concessions”and put in place“controls” tooversee the taxdollars beingused to “bail outgreedy corpora-John M. Suendertions thatfailed” so that it“doesn’t happenagain.” In reality,the government is grossly ill equipped tooversee the management of a business, but thepoliticians feel that they owe it to their voters totry. At the end of the day, the US governmentappears to be the true lender of last resort, soprotectionism becomes part of the cost of doingbusiness.The TARP funds are not only good for M&A,they are essential. Without banks making loans,there are no deals. The market will figure out away to price the cost of protectionism into dealsand we will survive.—John M. Suender, Director,Suender M&A Advisors LLC—————————The federal government, by injecting taxpayercapital directly into cornerstone industries,will take an increasingly dominant positionin corporate decision-making, which bybecoming nationalized will become unavoidablypoliticized. Congressmen play by political rules,not business rules. Much of the pressure to bailout the auto industry is coming from unionizedlabor, which has close ties to the DemocraticParty (now in almost complete control of thefederal government), and which has seen its influencewane over the last decades.With the government now exerting partialcontrol, and with Democratic dominance of thegovernment, federal decision-making concerningthe auto and financial industry inevitablywill increasingly reflect Democratic Party (andunion) policies (e.g., trade, livable-wages, electriccars, home mortgages to low-income families),whether or not those policies make eco-Don Keyssernomic orbusiness sense.How will theauto companiesmake decisionson bringing tothe US theirsuccessful autosfrom Europeand Latin America?How willthey make decisionson expandingproductionin non-USplants (e.g.,Mexico), to reducelabor costs? How will banks be able totighten mortgage lending guidelines, which78 ACG > MERGERS & ACQUISITIONS February 2009