Stupid Deals in the Boom ... just how stupid were they

There were alot of Stupid Deals during the boom time. I thought it might be interesting to look at some of them.

synopsis of a article in the FT a few months back .

2006 Foxtons Real Estate Agency was bought for £360 million Sterling by BC Partners
2006 Foxtons is said to be on track to make pre-tax profits of £25 million, despite a £6 million loss in the US.
2006 Estimated interest payments alone on the loan used to pay for the purchase were £26 million
2009 Anyone guess what Foxtons profit might be this year if any
.

So effectively someone paid 360 million for a company making only 25 million a year in the Uk and losing 6 million in the US and were going to have interest repayments of 26 million alone. I forget who wrote the piece but even that FT journalist was aghast at how this ever looked like a good deal.

Among the deal muppets were 'BC Partners is being advised by Rothschild in talks with its banks, Bank of America and Mizuho, which lent it £260m for the Foxtons deal. ’

Stupidty : yes no doubt about , finacial whizz bang kids show an amazing lack of smarts
Stupidity : no … I presume alot of people (excluding the vendor/founder of Foxton Jon Hunt made 300 million out of the deal) the deal makers, advisers, consultants probably made huge commissions.

Why : was it the cocaine, was it arrogance, was it the sharp dressed babe on the other side of the conference table, was it the four figure lunches

guess it doesnt really matter… just like to remind people lots of people are stupid, doesnt matter how they look, sound , act or place letters after their names .
just so people know where some of the money went …
forget all that line in the sand rubbish and lets not play the blame game, and we must make sure this never happens again, well the way todo that is to analyse in depth what actually occurred and not sweep it under the carpet.
Guess the 50million spent by the IT for a web site is another one… anyone care to expand on the details of that.

that doesnt sound like an unreasonable multiple of profits to pay for something especially something that has growth potential. the fact that it is cyclical and was due for correction probably was not taken into account. but then again those who are prudent in this world rarely get anything done, you have to be balls to the wall and go for it be that buying property or business and pay just that little more than everyone else.

generally profitability comes on cutting costs/increasing revenue by venture capitalists with a 3-5 year exit.
when you think about it, it doesnt seem to bad a deal compared to some that were done in the dot com era. i mean think about it, billions changed hand on companies that had never even sold a single good or service. how crazy was that.

I don’t think the psychology of a bubble has anything much to do with stupidity. Irrationality and hubris is always part and parcel of bubbles and can be displayed as often by the very intelligent as by the less so. Unless we can genetically engineer ourselves to robot-like levels of rationality we’re not going to eliminate that problem.

my pick on property deals

  1. Irish Glass Bottle site (€413m)
  2. River Island Grafton St (€100m + 2.25% net yield!)
  3. FAAC Site Sandyford (€110 m or €25m per acre)
  4. South king St Retail Development (€100m + yield of approx 2.4%)

Its the mentality that what worked in the past will continue to work in the future.

I wrote about this previously …

viewtopic.php?f=12&t=17079&p=182729&hilit=causation#p182729

You’d have to find room for Messrs. Dunne and Grehan’s purchases in Ballsbridge in that list.

Irrespective of ABP’s decision on whether they’re free to invent their own zoning for the sites.

“Balls to the wall” indeed.

€70billion cash paid by Fortis, RBS and Banco Santender for ABN AMRO in October 2007

Two months after first rumblings of the credit crunch.

The buyout of Hamilton Osborne King by Saville’s in November 2006 (or thereabouts)
The partial/complete(?) buyout of O’Donnell-Sweeney Solicitors (Ireland’s largest firm of property solicitors) by Eversheds in Spring 2007.

MOD Edit: Unnecessary.

Derek Quinnlan personally buying 50% of citi bank headquarters in Canary wharf at a yield of 4.58% for 1.bn

Market value today say 6.5% yield if finance could be got gives value of 700m ie loss of 300m or 150m personally to Derek.

I wonder do we as shareholders in Anglo own a piece of the debt in this building?

IT purchase of MyHome for Euro 50m in 2006.

as per an email doing the rounds

Considering that 1 year ago RBS paid $100bn for ABN Amro.

That amount could now buy them -

Citibank $22.5bn AND Morgan Stanley $10.5bn AND Goldman Sachs $21bn AND Merrill Lynch $12.3bn AND Deutsche Bank $13bn AND Barclays $12.7bn and THAT would leave $8bn in the kitty… with which they would be able to pick up GM, Ford, Chrysler and the Honda F1 Team.

Tyler

Excellent post

BS - YNWA

The Foxtons purchase even at the time seemed like an extraordinarily stupid play, but perhaps even more puzzling is how did such stupid players get to have that much money to play with in the first place, how come they hadn’t been relieved of it years before by some canny??
The real winner of course is the original owner, who no doubt will come out of retirement in ten years or so, just in time for the next wave.

The original owner, canny enough to sell out of Foxtons for a nice wad of cash, but still prone to the odd episode of bad judgement it seems…
At the peak of the London uber-prime housing mecca, Mittal apparantely offered him 200m£ for his home overlooking Hyde Park (the only house on the street nicer than Mittals own home).
He had paid 14m for it years earlier and the place still required a good 5-10m refurb as it was falling apart. App, he told them he had no interest selling.
Now I dont care how rich the guy is, he must be kicking himself that he turned that bid down, especially as it would now be enough cash to buy Foxtons back and have a good 100m+ still sittng in the bank!

oh I dont know if he would regret not selling…
He already has 500 million in the bank, nicest house on the street, Hyde park on his door step, being able to look down on Mittal, family home lived in it for years …

does he really regret not selling , he would have had to replace the house he sold with another property of similar ilk whihc would have cost … nah I doubt he is tossing and turning in his leaba over that one …

And if you did that deal today, you can be pretty sure that one of thiose companies has enough shite hidden in it to destroy the value of all the others before you had a chance to sort the whole lot out

2006 - A group of ex - Morgan Stanley bankers, headed by Vikram Pandit start a Hedge Fund called “Old Lane”.
2007 - Sold to Citibank for $800million, despite very mediocre returns
2008 - The same, Vikram Pandit later becomes Citibank CEO and in June 2008 writes off the investment and closes it down after continuing poor performance

So, takes 800m off Citi for the business, then becomes Citi CEO, then says that business I sold you is actually not worth much anymore

No wonder the US taxpayer is foaming at the mouth bailing out the industry after this kind of studidity XD