The Business Press Maven

Return to Article

Home Depot Hubbub Didn't Set Buyout Tone

Marek Fuchs

What's that, you are asking The Business Press Maven? What's that one practice of the business media that more than any other requires a fathomless level of pomposity, compromised reasoning and disdain for the intelligence of readers and viewers?

Ask me sometime and I'll tell you how I really feel, but it's the trend story.

In this respect, the business media are no different from the media at large, which write about purported trends so frequently that -- well, metaphors fail the situation. Only problem is that out of all the many trends they write about, only the occasional one proves legitimate.

Evidence of a few anecdotes harnessed to several leaps of faith don't always cut it. It is an open joke in the media business -- something that gets reporters and editors elbowing each other in the ribs -- that it takes three examples to declare a trend. The joke to them is what a low standard they hold themselves to, but the joke on investors is that the business media frequently don't even hold themselves to that inadequately set standard.

In fact, if you, as a savvy investor, want to automatically improve your investment performance, just do this: Whenever you are reading some declaration that a trend is afoot, give a bit of extra thought and time before you invest in what is most probably a supposition as thin as reeds. There, nailed a metaphor on that one.

Here's the latest, submitted for your disapproval. Right before the Labor Day weekend I saw a questionable headline from The Financial Times: "Home Depot could set buyout tone."

The gist of the article was that for Home Depot(HD) to save the deal to sell its supply unit to a private-equity consortium, everyone had to make concessions -- including the private-equity purchasers, who had to add $500 million in equity to the deal.

The upshot after examining this single occurrence? Well, look at that headline: This is going to set the tone! Sellers will have to cut prices to ribbons! As the article concludes in its second-to-last line: "Private equity executives may look at the Home Depot deal as a sign they will have to insert more equity into deals."

In other words, one single case ambles along. But presto! There you have it: A bouncing baby trend is born!

Before you go investing your money accordingly, don't forget that The Business Press Maven and The New York Times just got finished pointing out what a particular case Home Depot was. The deal was a double loser: a leveraged buyout in the housing sector. As such, it could not be representative of all private-equity deals.

But there it was. Despite its particular circumstances and lack of backup evidence -- even in the form of two more examples to make that vaunted three -- Home Depot was setting a trend.

A trend that apparently lasted all of 72 hours. Three days after the Home Depot trend declaration ran, The Wall Street Journal went with this setup in its lead referencing the many concessions and supposed tone that was being set by Home Depot.

"The recent drama over financing for the sale of Home Depot's supply unit was in some ways just a warm-up," the article reads. "An even bigger battle between banks and their clients at private-equity firms looms with the impending sale of First Data(FDC) to Kohlberg Kravis Roberts & Co."

Well, uh, guess what?

KKR essentially told the banks to kiss off on any meaningful concessions. They probably gave in on the precise assortment of conference-room Danish for the lawyers and that's about it. And what about that trend, the tone forever set by Home Depot? Wait -- as always when it comes to the business media, it gets better ...

In an article called "The Month of Reckoning" that ran this weekend in Barron's, the First Data deal was declared "the bellwether." Forget Home Depot. But, once again, no other deal is mentioned.

In this month described as all-important, circumstances will get their marching orders from exactly one very particular deal. And isn't KKR stronger than many buyout players? Should they really stand for the rest, especially alone? The bitter fact, as we see again, is that it doesn't even take three to qualify as a trend. Just one!

And just as others picked up on the idea that Home Depot was emblematic, the flavor of the day on Tuesday proves to be First Data. In its "Ahead of the Tape" column, The Wall Street Journal picks up where Barron's left off this weekend. They describe the First Data deal as "emblematic," adding, "Among all the pending buyouts, the $26 billion deal for First Data will likely set the market's tone."

In other words, once again step to the curb. Time to board the bandwagon of the latest trend declared on little more than a hunch.

In the end, forget Home Depot and First Data. The reader who emails me the next impending deal to be widely declared the start of a trend, will receive the first-ever Business Press Maven "Trendspotter" award. But most of all, remember: Trends and tone-setters are declared millions of times a year. And at least once or twice a year, the articles are even right. So beware. And be aware.