My column in the current Time is about Realogy CEO Henry Silverman’s return to the private equity world he left almost 15 years ago (he was a partner at Blackstone, and before that at Saul Steinberg’s Reliance Group Holdings). It took most of the space I had just to explain who Silverman is and why he matters, so I don’t quote him much in the column. But I’ve put together an abridged transcript of our April 12 interview (supplemented in a couple of places by subsequent e-mails). Just in case you’re wondering, the private equity CEO who sought Silverman’s advice about going public (see below) was not Blackstone’s Steve Schwarzman.
Is private equity eclipsing public markets?
A principal reason you went public in the past was access to capital. You do not have to be public anymore to have that access to capital, whether it’s debt or equity. The Realogy acquisition was roughly a $9 billion deal, which would have beeen very difficult to do 10 years ago by a private company. It was actually almost small by today’s standards.
Now, that said, a number of the private equity firms are considering going public. One of the reasons to be public which I assume they are viewing is that it can help with recruitment and retention of key personnel. There’s a lot of reasons to be public, there’s a lot of reasons not to be public, but you don’t have to be either one. I think that’s the point, that companies today and boards of directors and managements have a choice as to whether they want to be owned privately or publicly. That was not the case for large companies 10 years ago.
Were you frustrated with the way the market treated Cendant?
I was asked by the CEO of one of the private equity firms what my advice would be as to whether to stay private or go public, and my answer was, “When your stock is going up, being public is great. When your stock is not going up, it’s not so great.”
Because when your stock is not going up, everything you do is under a microscope and is criticized by investors-whether it’s the strategic activities you undertake or even your compensation. I had a CFO who once said to me, “When your stock is going up there’s no amount of money that shareholders care that you make and when your stock is going down $1 a year is too much.” I think that’s absolutely accurate.
Do you ever think staying in private equity might have been a better thing to do?
Oh yeah. Yes I do. When I was at Steve Schwarzman’s 60th birthday party, observing nonstop entertainment, etc., etc., I thought to myself, wow. Yes, there are certainly cycles, and in the current iteration of the capital markets clearly the private equity guys are sitting in the catbird seat.
I’m on the Business Roundtable, the CEOs of the largest 100-odd companies in the country. Most of these people wanted very much to be the CEO of a large public company, but realize that it’s not exactly what they had anticipated, for lots of reasons. One is competition has gotten a lot worse, and more global. Second shareholders are much different than they used to be.
It used to be that shareholders would vote with their feet, meaning that if they didn’t like what you were doing they would sell their stock. Now shareholders will try to find an activist investor who will lead a charge to unseat your board and fire you. It’s a huge sea change in investor attitudes, and it’s obviously what has caused many people to consider privatization.
I personally believe that Sarbanes-Oxley, which is what people talk about, that’s a red herring. The compliance with Sarbanes Oxley is not at all any more difficult than what 99.9% of companies did anyway.
But CEOs get paid a lot more now, too. Are all these people at the Business Roundtable really complaining that “woe is me”?
Yes, CEOs are paid more, and no, most of them are not saying “Woe is me.” But it is different. It is harder than it was. And so that certainly might compel people to think that private equity is a good solution.
Why did you break up Cendant?
The market said, “We don’t need you to manage our risk. We can diversify our own portfolio. That’s what we’re paid to do.” It really catalyzed in 2004, when we were like the 100th most profitable company in world and our market cap was in the 300th range. If you owned Cendant the day of the split up, you’re up 62% today. So clearly the sum of the parts was worth more than the whole.
Are you planning to step down at the end of the year?
Or sooner. Whenever Apollo wants me to say goodbye.
Will you retire after that?
No no no. God no.
What are you going to do?
I don’t know, but I’m definitely not going to retire. I think that would be a very bad idea.
Would you want to run a public company again?
I don’t think I’d ever want to get back into that. But I’m not at all certain that I wouldn’t be happy perhaps being parachuted into one of the various portfolio companies that one of the private equity guys owns where they’re looking for some gray hair. And by the way, it is gray now.
What business accomplishment are you proudest of?
I think that probably my finest hour was how we handled the crisis after we found the fraud at CUC, because we’re the only company that survived a major accounting fraud and I’m the only CEO that survived a major accounting fraud. We moved immediately to find out what happened and tell the truth the moment we discovered something was wrong. Keeping the company together and eventually creating $20-plus billion in value out of something which could have been zero was clearly … certainly the hardest I’ve ever worked.