Extract courtesy of May 25 Sunday New York Times/Gretchen Morgenson
There was joy on Park Avenue as the news arrived from Warsaw, a small Indiana city.
Two companies, twin pillars of Warsaw’s economy, had decided to merge. It was the biggest business story to hit the town in decades; an area newspaper, The Elkhart Truth, called the deal nothing short of an “earthquake.”
Back in New York, in the Midtown headquarters of the Blackstone Group, the tie-up meant a handsome payday for Blackstone and a handful of other private equity specialists. Together, they had bought one of the Warsaw companies, Biomet, in 2007. Now they had agreed to sell it for $13.4 billion, or $2 billion more than they paid.
Such is the way of private equity, a signature Wall Street business of the past two decades. The sale — Biomet was bought by Zimmer Holdings, creating a leading orthopedics company — meant a nice return for everyone, including public pension funds that had invested their money in the private equity partnerships that owned Biomet.
But for Blackstone and the other private-equity partnerships in the deal — overseen by Goldman Sachs, Kohlberg Kravis Roberts and TPG Capital — this deal will be a gift that keeps giving. That’s because, beyond the profits they share with their clients, they will be paid millions more in fees — for work that they are never going to do.
For the complete story from the NY Times, please click here