From Deal Journal, October 16, 2007.
Paul Danos (that’s him below) has seen a range of boom-and-bust cycles in his 12 years at the helm of Dartmouth College’s Tuck School of Business. The summer’s credit crunch threatens to mark the end of the latest boom, that enjoyed by the private-equity industry. Tuck also is home to the Center for Private Equity and Entrepreneurship. As such, Danos is particularly well situated to opine on how the private-equity industry might adapt to the changing credit environment and the prospects of M.B.A. students striving to enter the private-equity arena.
Deal Journal colleague Ron Alsop spoke with Danos for this column in today’s Wall Street Journal. Here is more of that interview:
Alsop: Do you think the summer’s credit crunch
marked a top for the private-equity industry? If so, is it changing how
Tuck prepares M.B.A. students seeking private-equity positions?
Danos: Close to 50% of Tuck students have a serious
interest in finance and most of them go into investment-banking firms
and corporate finance, but perhaps about 15% have their hearts set on
private equity, which could include hedge funds, buyout firms and
venture-capital firms. The most recent disruptions in financial
markets, especially the credit crunch, will deflate the demand in
buyout area first, somewhat, and, to a lesser extent, in some of the
investment banking. Certainly the huge write-downs by the large banks
will give them pause as they plan their recruiting year, but I am
cautiously optimistic that when the smoke clears our students will do
very well in most of those markets. We have found that most firms want
to continue to bring in the best M.B.A. students even during in a
downturn.
RA: What aspect of private equity is most in the spotlight at Tuck’s center?
Danos: I would say that the students who are interested in private
equity are most interested in the participating in the buyout of public
firms, which of course is an area that will be damped by the credit
crisis. Also, they are very interested in merges and acquisitions in
general. That activity will continue to occur among corporations for
strategic reasons even as the “going private” trend cool off for a
while.
PD: Any other comments on the credit and PE situation and outlook?
Danos: My guess is that the private-equity firms after a period of cool
down will find ways to do their deals. After all, much of the trouble
didn’t come from the huge buyout deals going sour but from a specific
bubble surrounding some very risky leading practices and the financial
instruments that were created for those mortgages. The reasons for
“going private” are compelling in many cases and, even in tighter
credit markets, many of those potential deals are still attractive and
sound. I predict that hedge funds and buyout firms will be alive and
kicking far into the future and, I would add, doing good for our
financial markets. Of course, the government could hurt their prospects
with ill-considered regulations, but even that is not that likely, in
my opinion.
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