How a business journalist wrote a book about M&A

Robert Teitelman was the founding editor of The Daily Deal and the The Deal magazine, and the longtime author of the magazine’s opening column, “Transactions.”

Prior to The Deal, he was a writer at Forbes and the editor of Institutional Investor magazine.

Besides the recent “Bloodsport: When Ruthless Dealmakers, Shrewd Ideologues, and Brawling Lawyers Toppled the Corporate Establishment,” he is the author of “Gene Dreams: Wall Street, Academia, and the Rise of Biotechnology “and “Profits of Science: The American Marriage of Business and Technology.”

He is a graduate of the College of William & Mary and Columbia University’s Graduate School of Journalism and School of International and Public Affairs.

“Bloodsport,” wrote James Fontanella-Khan of the Financial Times, is “well written, and a must read for any aspiring dealmaker or business journalist.” In a review this weekend in the Washington Post, ProPublica’s Jesse Eisinger called it a “sobering exploration of the mergers and acquisition business.“

Teitelman spoke by email with Talking Biz News about his new book and covering mergers and acquisitions. What follows is an edited transcript.

How did you get the idea for a book on mergers and acquisitions?

There’s a long-term, a medium-term and short-term answer to this. I got interested in corporate governance in the early ‘90s at Institutional Investor—notably what drives these fundamental shifts in governance models like stakeholders versus shareholders. It seemed so odd: such a major conceptual change, occurring so obscurely.

I wrote several features on this at the time, including a cover story for II; I spent a lot of time talking to Louis Lowenstein, a corporate law professor at Columbia (and Roger Lowenstein’s father) and at the time read many of the papers of Harvard’s Michael Jensen. At The Deal, I did some work on the intersection of governance and M&A, partly piqued by comments Wachtel Lipton’s Martin Lipton made to me in a video interview about his time with Columbia law professor Adolph Berle, often viewed as the father of corporate governance (that’s something of a misnomer in fact).

Questions about the politics of governance began to bother me. When The Deal was sold to TheStreet.com, and I suddenly had free time, I decided to read the primary material — law reviews, opinions, business and economic papers, books — about the genesis of modern M&A; all the things I had never gotten to. That turned into the book.

How much of the content came from your career covering M&A?

My years at II and The Deal gave me a pretty good grounding in ground-level M&A—and a lot of the material in terms of interviews and research came from that period. I lived deals for 13 years, along with a very loyal and knowledgeable newsroom. I knew many of the players, though it’s foolish to think you really know them.

I had interviewed a number of them in the past, and worked for one —Bruce Wasserstein, who founded The Deal and hired me. And I’d read much of the reporting on the ’80s. But the vast bulk of the content came from research during the two years working on the book.

It was thrilling to discover this extensive, serious and passionately argued literature on the period that existed, and which, except for some signature essays — Lipton’s “Takeover Bids in the Board Room” or Jensen and Meckling on agency costs — had been pretty much forgotten.

And then there was the opportunity to explore the work of a lot of fine journalists as they responded to the rise of hostile M&A in that period: Chris Welles, Jerry Goodman, Cary Reich, John Brooks, James Grant, Allan Sloan, James Stewart, Connie Bruck.

I admit it: I borrowed from them to the point of theft (all footnoted, of course); but it was also interesting to see what they didn’t deal with. found myself describing a kind of interplay here between theory and practice — journalists and academics, politicians and ideologues, and in a complicated way, Joe Flom and Lipton. Mapping all this was complicated.

How did you come up with the name of the book?

The title came from the first line of the book proposal, where I described M&A as “the great American white-collar bloodsport.” It was, frankly, hyperbole. My editor grabbed that and made it the title, and he was right about that, despite the fact that other books, including one by James Stewart, used it as well. (I’ve also heard a lot of jokes about a Jean-Claude Van Damme movie of that title.) The subtitle had many iterations, as did the striking, if unsettling, cover image.

What’s the one thing about M&A that most people don’t know about or understand?

There’s a lot about M&A people don’t understand. The underlying governance mechanisms, and their intellectual underpinnings, remain completely obscure, even to practitioners and reporters. When “governance” comes up, they just want to reduce it to a shareholders vs. managers conflict.

The jurisprudence from Delaware that forms the working legal platform for M&A — it continues to evolve, of course — is a mystery, even to many corporate lawyers. The ideological rationale for a shareholder system, most of which goes back to the University of Chicago in the ’70s and ’80s, is pretty much lost—though “efficient markets,” “rational expectations,” and “agency costs” still get bandied about.

The general public knows very little about M&A beyond what their politics tells them they should think—that it’s a “good” thing, like cod-liver oil, or a “bad” thing, like cholesterol. In fact mapping partisan politics over governance issues produces an incoherent jumble. That’s one of the reasons I wrote this, to dig beneath this simplistic good-and-evil, shareholder-and-manager dichotomy.

How open were the dealmakers to talking to you for this book?

I started Bloodsport with an ambitious plan to interview everyone. I gave it up fairly quickly. Many of these key figures were dead or infirm. Moreover, this was less about practitioners than about legal and economic thinkers — and their most articulate arguments existed in print.

The literature was very rich; and one of the themes of this book was to look at how journalists, as proxies for a mass democratic public, confronted this phenomenon, and how their views differed from, say, academics or lawyers (or, in fact, how legal scholars tended to disagree with practitioners).

Much of that literature, like the succession of Delaware decisions, required close reading, with one text leading to the next; it’s all in the footnotes, the preparation of which almost killed me. So the interviewing became more strategic — I emailed or interviewed when I had specific questions. (There were exceptions here: I interviewed some key folks a number of times — Marty Lipton comes to mind — mostly on biographical matters.)

But I have to say that there were a number of folks — mostly legal academics and judges — that I never had time to approach, particularly major players who arrived on the scene in the ’90s or later (the original proposal foresaw a much longer narrative, but that quickly became unrealistic). You can’t do everything.

The book ended up with a complicated structure: a chronological narrative of linked profiles that was really anchored in a discussion of key documents.

Why did you think it was an important topic to write about?

I laid out why I think this is an important subject in the first few chapters. The corporation is really the mightiest engine of American wealth. And yet it’s broadly a mystery to the public, as is Wall Street, and the fine points of governance.

M&A affects nearly everyone at some point or the other: Who hasn’t gone through an acquisition or sale, suffered layoffs, cashed in stock after a deal, or seen their local taxes rise and their property values fall as the local company gets gobbled up?

And yet so much about the process is poorly understood or mistaken. So often the conversation on M&A never gets beyond the ritualistic “creative destruction” or “shareholders as owners.”

How competitive is the M&A world for business journalists?

The M&A beat has grown increasingly competitive over the last few decades. The major financial papers, news organizations and cable shows throw a lot of resources at it; there are specialty shops like The Deal and Merger Market covering a broad array of transactions; and there are a variety of niche news and data providers, focusing on one sector or kind of deal, like the middle market (Mergers & Acquisitions) or private equity (PeHub).

That said, I always believed there was too much effort placed on scoops and breaking deals — it’s tough to beat the big papers to them — and not enough on the multitude of reportable events and issues that occur after a deal is announced, many of which are absolutely vital to many constituencies.

In fact, if you look at any particular deal, most of what you find online is the initial stories, all containing the exact same information (errors proliferate like little scarlet “A’s”) and language, and then very little unless it begins to come apart or new bidders crash the party.

The Deal has always tried to pursue cradle-to-grave coverage, which is demanding of time and resources. Comprehensiveness is a goal, if unattainable.

What mistakes do M&A reporters make?

Every reporter makes mistakes. M&A or deal reporters make the same mistakes as everyone else. Names wrong. Numbers off. Billions that become millions. Many of the biggest mistakes occur in the rush to be first; there’s a lot of reported deals that turn out to be vapor.

Corporate execs are talking all the time, bankers are salesmen, a meeting in an airport hotel may seem like a globe-girdling merger. It’s awfully easy to get played. There’s a herd mentality in the markets that journalists are as vulnerable to as investors and bankers.

Everyone wants to declare a big deal, an M&A boom or bust, based on sketchy data, often from just one loose-tongued source. The conventional wisdom looms large; everybody’s an expert. At the deepest level, mistakes occur because of a lack of context, understanding and technical knowledge.

Not enough reporters know the history of these deals, or the history of the major players or how Wall Street works. Few know the various conflicts and agendas at work. And the puppet-masters are professionals. It’s hard. If you want an example of world-class deal analysis, read the stories Allan Sloan and his coauthors produced in the mid-’80s on LBOs and Milken’s junk-bond empire in Forbes. It’s an education in investigative analysis all by itself.

How does coverage of deals before they’re completed affect them?

This is a deceptively difficult question, because it goes to the heart of the goal of “deal coverage.” M&A is a public event, usually between publicly traded entities. Their share prices are a kind of sensitive barometer to how the transaction is going, which is why knowing what arbs are up to is important.

Deal reporters have a utilitarian function to players in the transaction: providing basic facts, some pretty obscure if vital. Can reportage reshape a deal, or kill it, based on some sense of public good? Possibly, though that’s very rare. It’s difficult enough to pry out deal terms, or get a sense of regulatory issues, or looming integration issues.

There are two big determinants influencing M&A deals, far above journalism or, say, Wall Street research: the market and the regulators (including the courts).

Reporters normally are just describing the action, like commentators at a sporting event, though I do think they probably could explore more deeply what’s going on within merging entities. But except in egregious cases, making the case against a deal is tough, because there’s so much you can’t know.

And new deals crop up every day. What you can do, however, is step back and try to describe realistically trends that may be red flags: loosening covenants, mounting premiums or leverage, problems in the courts.

If most deals don’t work out, as research has shown, why do companies keep doing them?

M&A “failure” is a subject I’ve thought a lot about. The studies on M&A effectiveness are all over the place. The notion that most M&A deals fail has become a kind of meme, without a lot of sophisticated understanding of what’s beneath the surface; its closest sibling is the ‘80s belief that all takeovers were, by definition, “socially beneficial.”

A lot of M&A deals do fail, or at least they’re not accretive to earnings over a reasonable period of time. But that tells us nothing; there’s risk in everything. Do you stop doing R&D because it’s risky? (Well, unfortunately, in too many cases, companies do.)

You can’t really quantify that number because the success or failure of deals tends to change as markets rise and fall. The lousiest markets tend to produce the best long-term deals, and vice versa. The notion that most deals fail also has significant counterfactual problems. You can never test what might have happened if the deal was never done, if the companies blithely went along their way.

You also have trouble with the short-term and long-term issue: Deals may be stinkers over the first few years and blossom later. Finally, there’s the reality that corporate management operates. How do they grow their company? They can invest money in new products, in R&D, in expansion. But growing organically in a world of exploding technologies, can be difficult, particularly in light of impatient markets that demand growth and share appreciation.

And so buying or selling becomes an option; M&A become a vehicle of change. That doesn’t mean that so-called transformational deals are necessarily a good idea: they’re often desperate Hail Mary passes and they blow up spectacularly and regularly. From an operational standpoint, all the studies suggest that a steady, careful program of smaller deals works best, with all the disciplines of integration fully refined and smoothly working.

Let me broaden that out a bit. The world of companies and markets is prone to fads and fashions—often driven by managerial or investor self-interest and shaped by the markets. Buybacks are one example: We’re going to look back on this mania for shareholder and manager aggrandizement with horror some day.

But it’s fascinating to see how two opposing memes — all deals are bad or all deals are good — emerge and are presented as some new wisdom, depending on the specific financial environment. In the markets, the past is easily (and foolishly) abandoned, and new ideas, which are often really old ideas, are donned like a suit of new clothes. We saw this dramatically when the “all M&A is bad (or risky)” became the conventional wisdom after the financial crisis and lasted all the way to 2014 when the mood, and the mantra, shifted, literally overnight.

I suggest at the end of Bloodsport that that shift is usually the result of the alignment of interests between senior share-compensated managers and investors, a trend that’s often celebrated. This alignment cries out for skepticism. What’s been produced is an increasingly narrow oligarchy and a petri dish of stifling, short-term groupthink — bubble thinking.

We’re now in a part of the cycle where M&A deals are being done with great alacrity and rising premiums, suggesting that the cycle is nearing its end.

My rule of thumb, in all aspects of M&A, is that there are no universal rules or prescriptions, short of basic moral principles underlying fiduciary duty. Anytime someone says “everyone knows” or “we all agree” or “this end is inevitable,” it’s time to run for cover.