by Stephen Frey
Investors in Everest Capital’s private equity funds were known as limited partners, “limited” because they had no management authority over the fund. Gillette, Cohen, Mason, and Faraday were the managers. Responsible for identifying companies to buy; finding executives to operate them; and deciding when to sell. With Gillette now being the ultimate decision maker on all major issues.
The investors had limited financial liability as well. They couldn’t lose more than they put in. Which had never been an issue for any of Everest’s seven funds. Going back twenty years, each Everest fund had returned at least three dollars for every dollar invested.
Everest Capital earned an annual fee from the limited partners to cover expenses—for things like the salaries of Everest’s thirty-three employees and the lease expense for its Park Avenue offices. The aggregate fee—a percentage of the total dollars Everest managed—was a hundred million. Big money. But the real sizzle for Gillette, Cohen, Faraday, and Mason was the opportunity to share in the profits, or “ups,” from the sale of portfolio companies out of the funds.
Typically, Everest acquired ten to twenty companies with each fund, running the companies for three to five years after buying them. Significantly increasing profits before taking them public or selling them to bigger companies. In most cases cashing out for much more than they paid. Distributing the sale proceeds back to the limited partners after the transaction.
The kicker for Gillette and the others came after the limited partners had gotten back their original investment. Once that happened, Everest kept 20 percent of the profits. So, if the original investment by the limited partners was ten dollars and Everest turned that into forty over the life of the fund, Everest kept six—20 percent of the thirty-dollar gain. Of course, if the original size of the fund was ten billion and that ten billion turned into forty billion, the “ups” were six billion. Six billion split just four ways—now that Donovan was dead.
The last private equity fund Everest had raised—Everest Capital Partners VII—was 6.5 billion. It was the seventh fund Everest had raised, and was one of the largest of its kind. Donovan and Nigel Faraday had led the money-raise, completing it eighteen months ago. A little over half of the 6.5 billion was invested in seven companies.
Already, Gillette was planning a new fund—Everest Capital Partners VIII—which would be ten billion dollars. Along with the five billion Everest still managed in funds I through VI—and the 6.5 in VII—the firm would control more than twenty billion dollars of private equity capital. Once VIII was raised, Everest would become the most powerful private equity firm in the world.
“The four of us keep all the Everest upside in the next fund,” Cohen continued. “And, as chairman, you decide how that’s divided.”
Gillette’s eyes narrowed. Twenty billion dollars. A tremendous amount of money. Easily enough to convince whoever had just tried to kill him to try again. “You said the widow wouldn’t share in the upside of the next fund.”
“That’s true,” Cohen confirmed.
“I assume she wouldn’t get that 25 percent voting block either.”
“No, she wouldn’t.”
“How does that work?” Gillette asked. “When does she lose that right?”
“As soon as we raise another fund that’s the same size or bigger than the last one. Once that happens, she’s just like everybody else. Her vote is equal to her pro rata piece of the current fund. Her dollar commitment divided by the size of the fund.”
There were implications to that—good and bad—Gillette would have to sort through. But it would take at least a year to raise VIII, so it would be a while before he’d have to deal with them. “Ben, we’re going to start raising the eighth fund next week,” he announced. “The target for Everest VIII is going to be ten billion dollars.” It was the first time he’d mentioned this to Cohen.
Cohen squinted and his mouth fell slowly open. “Ten billion?”
“Yes.”
“But we’re only a little over halfway through the seventh fund.”
“The partnership agreement states that I can start raising the next fund after we’ve invested 50 percent of the current one.” He’d checked that clause this morning, too.
“Sure, sure, but Bill always waited until we’d invested at least 75 percent,” Cohen countered. “He thought it was better that way. So the limited partners would feel like we were more focused on generating returns and not just raising more money so we could collect bigger management fees. We didn’t start raising VII until we were 80 percent of the way through VI.”
“Ten billion is a lot of money. We’ll need extra time.”
“Will the insurance companies and the pension funds commit that much?” Cohen asked skeptically. “Is there enough money in the market to do this?”
“There’s always enough money.”
“I don’t know.”
“Don’t worry.”
“It’s what I do best.” Cohen sighed, adjusting his glasses. “Christian, there’s something you should know.”
Gillette glanced over. “What?”
“Both Kyle and Marcie have been approached by other private equity firms. They’ve been offered very nice packages. Big salaries, guaranteed bonuses, and big pieces of the ups.”
Kyle Lefors and Marcie Reed were managing directors at Everest Capital. One rung below Cohen, Faraday, and Mason on the Everest organization chart. There were several other managing directors at the firm, but Lefors and Reed were the most talented.
“I knew about Lefors,” Gillette said.
“How?”
“Tom McGuire.”
“Of course.”
“But I didn’t know about Marcie.” Gillette took a deep breath. “I don’t want to lose either of them.”
“What are you going to do?”
Gillette heard the concern in Cohen’s voice, and the reason was obvious. There was really only one way to deal with the problem. Promote Lefors and Reed to managing partner and give them a piece of the ups in VIII. Of course, Cohen, Faraday, and Mason wouldn’t want that because it would mean less for them. Cohen and Mason might argue against the promotions calmly, but Faraday would go ballistic. He had a terrible temper.
“I don’t know yet. I need to think about it some more.”
“Just don’t—”
“Did I see Faith Cassidy at the funeral?” asked Gillette, switching subjects as he pulled out his Blackberry—a cordless, handheld e-mail and cell phone device—and began rifling through his messages.
Faith Cassidy had exploded on to the pop music scene last year with a debut album that sold millions. Her second album had come out recently. Through the sixth fund—the same one that owned McGuire & Company—Everest owned the entertainment company that controlled Faith’s music label.
“Yes, she was at the church,” Cohen confirmed.
“She’s an attractive young woman.”
“I suppose,” Cohen agreed indifferently, watching the trees flash past.
“Who invited her?”
Cohen stayed silent.
“Ben?”
“All right, I did,” Cohen admitted. “Bill liked her a lot. I thought it would be a nice gesture. You have a problem with that?”
When the Town Car had climbed the long, steep driveway and eased to a stop in front of Donovan’s mansion, Gillette stepped out and waited for Troy Mason to escort the widow up to him.
“Thank you again for delivering the eulogy,” she murmured from behind the black lace, still clasping Mason’s arm. “I know Bill appreciated your kind words.”
Gillette glanced at Mason’s bitter expression. Mason was tall, blond, and handsome. A man who would have been playing football on Sundays instead of buying and running companies if he hadn’t destroyed his left knee in the Rose Bowl his senior year at Stanford. He still walked with a slight limp.
Gillette and Mason hadn’t spoken since the decision of the partners had been announced yesterday afternoon. Normally they talked f
ive to ten times a day.
“It was an honor, Ann,” Gillette assured her, turning his attention back to the widow. Trying to see behind the veil.
“People will be here soon,” she whispered.
Gillette nodded. “We should get you inside.” There was a gust of wind and the veil fluttered. For a moment he caught sight of her pale face and drawn lips. “May I use your husband’s study this afternoon?”
The widow slid her arm from Mason’s and moved beside Gillette. “You know people will want your time, don’t you?”
“No doubt.”
“Even if all they can get is a few seconds,” she murmured. “Because of all that money.”
Now that she was close, he could see through the lace. “Yes.”
“We chose wisely the other day,” she whispered, her back to Mason. “Bill would have voted for Troy. He loved Troy like a son.” She hesitated, gazing off into the distance.
Like the one she could never give him, Gillette thought to himself.
“Offer me your arm, Christian.”
Gillette glanced over the widow’s shoulder into Mason’s burning eyes before turning to escort her down the stone path. “Thank you for your vote at the meeting,” he said. “Without it, I wouldn’t be chairman.”
“You should thank Miles Whitman. I was going to vote for Troy until Miles called and told me you were the best person for the job. I’m glad he did.”
Miles Whitman was Everest’s largest investor. “So am I,” Gillette agreed.
The widow clasped his arm tightly. “Take care of my money, young man.”
“Like it was my own.”
They were quiet until they were almost to the mansion.
“Always make people come to you, Christian,” she advised him as they reached the stone terrace in front of the main entrance. “Always make people see you on your terms. When you’re prepared. Never before.” She turned to face him. “I learned a lot over the last twenty years. Even as just the wife.”
3
Negotiations. The purchase of a company—price, cash or paper, representations, warranties. Details of a senior executive’s pay package—salary, bonus, stock options, perks. Terms of a critical financing—interest rate, repayment schedule, covenants. Issues that the private equity professionals deal with constantly because the CEO of a company owned by a private equity firm can’t make a move without his chairman’s approval.
And, in a world dominated by constant negotiation, there is one hard and fast rule. It isn’t the one who wants something less who has the advantage. It’s the one who appears to want it less.
EVERYTHING ABOUT DONOVAN’S STUDY WAS imposing. The huge stone fireplace. Big desk. Dark wood walls. Expensive furniture. Oil paintings. Photographs of him with famous people—politicians, sports figures, entertainers—cluttering the credenza and floor-to-ceiling bookcases. All of it designed to intimidate the visitor.
Gillette took a deep breath. The scents of leather and wood smoke. It reminded him of his father’s study.
The wooden chair behind the wide desk creaked as Gillette eased into it. Through the dim light he gazed at himself in a gold-framed oval mirror hanging on the far wall. Black hair parted on one side, combed back behind his ears. Sharp facial features—a thin nose, strong jaw, prominent chin, and high, defined cheekbones. And intense gray eyes that people naturally locked on to. At six two and a fit 190 pounds, he was an imposing figure on the other side of the negotiating table—which always helped.
The image in the mirror blurred as the exploding limousine flashed through his mind once more. He grimaced. Two people dead. A few more paces and he would have been—
A knock on the office door broke the stillness.
“Christian.”
He recognized the heavy English accent immediately. “Come in.”
The door opened and closed quickly, and Nigel Faraday appeared out of the gloom. Faraday was pale, round-faced, and rarely without a drink in his hand if he wasn’t at the office. This afternoon was no exception.
“Bloody hell.”
“What’s wrong, Nigel?” Gillette asked, watching the Brit swirl the ice in his glass with his finger.
Faraday was Ben Cohen’s alter ego. Faraday hated details and had no desire to be tied down by a family. Thriving instead on Manhattan’s nightlife. Entertaining Everest investors three or four evenings a week, often until two or three in the morning. An expert at raising cash, he had that knack for knowing the exact moment to ask for big money—and getting it.
“Our plan was a bust,” Faraday muttered, throwing back a healthy swallow of scotch. “Fucking Cohen.”
“Not even going to try to deny the conspiracy?” Gillette asked, touching his forehead to make certain it wasn’t bleeding again. They weren’t particularly close, but he’d always liked Faraday. His sarcasm was entertaining, and, if you weren’t careful, the accent could be hypnotic.
“Cohen was supposed to get you down those steps faster, then tell you he’d forgotten something in the church and get away from the limo. But all that little fucker can do is run numbers. And babble Latin,” Faraday added, smiling. “Mason and I should have remembered that.”
Gillette almost smiled back—three days ago he would have—but he controlled his expression. Things were different. He had to maintain his distance now that he was chairman. “Next time you’ll do a better job of preparing.”
“You’re fucking right we will.”
Gillette shook his head. Faraday dropped the f-bomb constantly.
“Chris, I—”
“Christian,” Gillette interrupted.
Faraday chuckled, then coughed and wiped the smile away with the back of his hand when he realized Gillette was serious. “Well, look, I just wanted to make sure you were all right. I was worried about you there for a few minutes, what with all that blood. I’m not going to lie and tell you I wasn’t disappointed that I didn’t get the nod from the limited partners yesterday. I thought I had more than a few of them in my pocket. After all, I raised a lot of their dough.” Faraday paused. “But I’m glad you’re all right.”
Of the ninety-three investors in the Everest funds, Faraday had won only three votes. Translation: The limited partners enjoyed the entertainment, and they committed dollars to Everest when Faraday asked, but they had no confidence in his ability to actually manage the money. To acquire healthy companies and make savvy operating decisions once Everest owned them.
“Thank you,” Gillette said quietly.
“I also came to let you know that Senator Stockman fucking wants to see you.”
Gillette glanced up from a manila folder lying on one corner of Donovan’s desk. “Looking for handouts, is he?” It hadn’t taken long for the parade to start.
“I’m sure he’d refer to it as ‘support.’ ”
“Aren’t you fucking sure?” Gillette shot back, spotting a razor cut on Faraday’s cheek. Faraday was swarthy and always nicking himself.
Faraday’s round face slowly broke into another grin. “Yeah. I’m fucking sure.”
Gillette nodded. “I’ll see him. But tell him it’ll be a few minutes.”
“Should I come back in with him?”
“No, send Cohen.” Faraday’s grin evaporated and anger flashed across his face, but Gillette motioned toward the door before the other man could complain. “Go.”
When Faraday was gone, Gillette glanced back into the mirror. Urgency and efficiency. Make the most of every second. Bill Donovan’s mantra. Over the last ten years Gillette had become a disciple.
Faraday worked his way through the crowd toward Cohen. A thousand people had been invited to the reception and all of them seemed to have accepted.
He tapped Cohen on the shoulder. “Hey, Moses.” His nickname for the little man.
Cohen excused himself from his conversation with Faith Cassidy. “What is it, Nigel?” he snapped, irritated at being interrupted.
The Brit grinned smugly. “Where’s your wife?”
>
“Why?”
“She’s usually smarter about monitoring your fucking pecker.”
Cohen pursed his lips. “Why do you like hassling me so much?”
“Because it’s so fucking easy.” Faraday gestured with his glass. “Our new leader has summoned you to the study. By the way, he’s calling himself ‘Christian’ now.”
Cohen rolled his eyes. “Yeah, I know.”
“Sit down, Ben.” Gillette motioned toward the two chairs in front of the desk.
Cohen chose the one farthest from the door.
“I need your help.”
“I want to help in any way I can, Christian. Especially right now when you’re just taking over.”
Gillette studied Cohen’s expression, trying to determine whether the signs of submission were sincere. “Senator Stockman wants to meet with me, and I need someone else in here while we talk.” Gillette watched Cohen relax. He understood that a new order had just been established, and that he was now second in command. “Just so there’s no misunderstanding later about what was said.”
“Thanks,” said Cohen, looking down. “I appreciate your including me.”
Gillette waited for Cohen’s eyes to come back up to his. “Did you talk to Mason?”
“Yes.”
“And?”
“And you were right, Christian. One drink and Troy wouldn’t shut up. He’s definitely bitter. Apparently, Donovan was planning to step down at the end of the year and turn everything over to Troy.”
Gillette nodded. It was exactly as he’d thought. “How about Miss Cassidy? Did you talk to her?”
Before Cohen could answer, the door opened and Senator Stockman walked into the study. He was tall and distinguished, with silver hair and a healthy tint to his skin. He strode purposefully to the desk and extended his hand without glancing at Cohen.
“Look at you, Mr. Gillette,” Stockman said as they shook. “Suddenly you’re a powerful young man.”
Gillette motioned for Stockman to sit in the chair beside Cohen’s. He’d met the senator several times over the last few years but always in Donovan’s presence. Before today, Stockman never seemed to remember his name.
