You’re Doing Dealmaking All Wrong

Right now the dealmaking process at big banks is broken. I’m not sure if it ever really worked very well but it’s obvious that things have fully broken down. It seems like more SPAC’s shut down than there were SPAC’s which actually operated in 2022. Morgan Stanley lays off a bunch of dealmakers. The “Big Tech” companies that were once the darlings of investors and the targets for acquisition from startups, are fighting for their lives now. Meta? Done. Snapchat? Who cares. Twitter? Enough said. Social media destroyed dealmaking in a lot of ways, but many other “tech plays” are also to blame.

Modern Dealmaking Is So Bull-shit

Every MBA who got up in front of a pitch contest saying they were going to make the “Uber of blah blah blah” industry, who got $1,000,000 to raise $10,000,000 so they could get valued at $100,000,000 for financing in the billions…their businesses didn’t work. They ended up being given a lot of money to live extremely lavish lifestyles for themselves so they could convince richer & richer people to give them more & more money. That kind of anti-frugality was seen as good for so long because there were buyers at every level of the channel until these overinflated trash bags get dumped onto the retail markets.

When you learn how large capital raising, M&A, or other financial dealmaking goes on, you easily get the problem. If you were an executive at a major bank, you could get 1% of whatever capital you’re responsible for deploying. On $1,000,000,000 that’s $10,000,000. Imagine getting $10M in 1 year because you were one of the people who brought money to Elon Musk to purchase Twitter.com. For most people in that industry, they are not in any way responsible for if the deal is a good one. Those dealmakers at banks never take an active position to do anything valuable in the company. So what exactly is that 1% for? In a fair market, that would be 1% of value-add.

Making the business more efficient. Restructuring debt. Doing something to make it a better deal than it would have been without that $1,000,000,000. This raises the question about what makes something valuable, and what value actually is. For the purpose of this point, use your common sense. If you saw a house that cost $44,000,000,000 but you knew that it could be built even better for less than $4,000,000,000 you would be an idiot to buy the thing that’s 10x overvalued.

Get Real…Estate, Because “Tech” Is Just Intellectual Property

In actual physical real estate, this is generally impossible to even do. You can’t have a $10,000,000,000 house next to a $1,000,000 house. That’s just not how real estate works, because it is usually easy to understand what things are actually worth. But this market (overrun by dumb tech) has no fundamentals so nobody has any understanding of even what measurements should be use to value things. Too many fantastical marketing pitches about “Web 3” have convinced people that they aren’t just re-inflating the dot-com balloon again. I guess some people really just never learn lessons.

Imagine this, now…you only need $1,000,000,000 to compete with something like Meta, Twitter, or their equals. Even that is probably way too much money. But it’s a hell of a lot less than Musk paid, so take it with a grain of salt. If you’re Elon Musk, you have that money in a family fund your Daddy got you by exploiting slaves in mines in South Africa. You could just make your own website easily. If he’s such a genius, having made billions on a “tech” company, he knows that. But if Musk isn’t a genius, and he’s really just a stupid spoiled rich baby man, then he is an actor and nobody should bet on him for anything.

In the case of construction, ordinarily the process is bidding down prices. With respect to Elon Musk’s government contracts, the goal is always to be the lowest bidder, right? Not the highest bidder. That is an auction. Yet with Twitter, for example, there was no competition. No competitive bids. Because nobody actually believes it’s worth what the market always said it was worth. Until Elon Musk offered to buy (a company he owned 9% of already) Twitter for some insane amount of money, it was on a collision course with bankruptcy due to mismanagement, a child porn problem, and FTC consent orders they couldn’t actually comply with and still operate how they were.

Back to that cool billion dollars…in finance, instead of attempting to structure deals that cost investors and shareholders less, and provide more value to the public, dealmaking has transformed into a process of unjustly enriching 1 or few people at the detriment of basically every other living person. Dealmaking went from an opportunity to get rich by making things better in the world, to attempting to become king without a crown on any corner of the internet a person can buy. It’s really sad, actually, because you see highly intelligent people wasting their breath saying the word “tweet” or pretending Elon Musk is smart.

On $44,000,000,000 there is $440,000,000 available in fees…for Jared Birchall who deployed that amount of money from/for Elon Musk. Then you have a number of different bankers potentially also making that same amount of money across multiple dealmakers. That means there could have been yet another additional $1,000,000,000 in fees associated just with the people involved in this dealmaking. On the contrary, that $1,000,000,000 project could only additionally cost you about $25,000,000 or maybe even $50,000,000 if people’s fees are higher on lower cost deals.

Brainless Bank Bros Baking Big Bonuses Into Business

Algorithmic dealmaking has also ruined things, but the way that’s happened is by forcing people into a premise that is flawed: more money equals a bigger, better deal. It’s just not true. You can really literally buy nothing for $44,000,000,000 and Elon Musk is the proof. While it won’t always be possible, because of the function of my approach, but for the next 2-3 years at least, there is definitely a much better way.

A bear market method of dealmaking that is extremely value-add involves taking an active position. For example, it’s not enough to structure financing anymore. If a banker can’t add strategic value, or they don’t have a consultant deployed to actively fight, they will not be successfully closing deals. In the case they actually find a deal, and close it, that deal won’t survive without a heartbeat. My method takes the same current market valuation techniques to determine what a fee ought to be to buy it, invest in it, or otherwise take it over. But my method takes advantage of affluent frugality, which is hardly thrifty.

Take Snapchat for example. The market capitalization for this company is now hovering at about $16,000,000,000. A 1% fee on that would be $160,000,000. Snapchat is kind of a bad example because they really don’t deserve to even exist anymore as a company. In fact, there is probably enough PTSD associated with that logo to determine that it would be healthier for the world to just destroy this. But considering a world where Snapchat is just bought, restructured, and relaunched, let’s take a look.

$160,000,000 is a lot of money. But if I’m a banker, I don’t want to make less than that even if the company ultimately isn’t what what it looks like on the market. Yet, today there is really no incentive to beat up the value of this company because I’d actually make even more money if I tried to convince my bosses to buy Snapchat for $44,000,000,000. Elon Musk set a value for Twitter.com and there are a few stories I can imagine that would justify evaluating them as equals. You can see that $440M is a lot more than $160M no matter how many people are involved in the dealmaking process there.

It Is What It Is, Buddy Boys & Girls

The senior executives and board members of banks are likely to be resistant to this idea, even though it’s logical. What should be happening now, is I should be given $160,000,000 to try to get Snapchat’s valuation down to something that would make the bank a lot more money long-term.

For example, if I could prove that Snapchat is actually only worth $5,000,000,000 (it’s not even worth that but just for argument’s sake) that means the dealmaking commission would normally really only be $50,000,000. When you look from the perspective of the overall deal, saving $11,000,000,000 on the acquisition, you’re only paying me 3.2% overall success fee. It’s high for that level of capital, but it saves a lot of money. More importantly, this creates value.

One of the reasons you haven’t been seeing this is the anti-competitive market we’re suffering through where there are too many conflicts of interest to allow the deflation of values where they really need to be. Once that happens, you will see dominos fall in this market at even more historic proportions. It will be painful for a lot of people but ultimately this is exactly what people need.

Additionally, the success fees for increasing stock valuation need to come back down to Earth. There is no reason that Elon Musk should have been getting compensated multi-billions of dollars during the 2020-2022 recession as TSLA proved to be nothing more than a meme stock. With TSLA’s ongoing fall from grace, and Elon Musk’s inability to run a blog website without resorting to neo-Nazi tropes or recycling the goddamn Hunter Biden laptop story for the 1,000th time…it’s obvious what’s done.

Wake Up & Smell The Rose Colored Glasses

The old economy is dead. People are attempting to revive corpses, sloshing around the last of their cheap money. In other cases it appears that people like Elon Musk are knowingly destroying billions in money they never lawfully obtained in the first place. There is a lot of guilty consciousness playing out on display around the world right now. It’s an amazing moment to watch.

But be on the lookout in 2023 for bearish deals like this taking place, crashing values down to nearly nothing, as the substance-less junk gets thrown away.