Monkey Business (22 page)

“Oh, it’s a liquidity issue.”

“Estate planning, nothing more.”

“Diversification, they don’t want to have all their eggs in one basket.”

In general, if the people who know the most about the business are taking their money out, it’s a safe bet that you shouldn’t
be putting yours in.

Underwriting
—This section will indicate which banks or brokerage houses are getting allocated a portion of the offering to parcel out
to their preferred accounts. Effectively, the relatively small number of investment banks that underwrite the deal (the managers)
sell the entire deal to a much larger group of brokerage houses (the syndicate), which in turn sell the deal to investment
institutions and individuals. Now it’s much more lucrative to be a manager of a deal than it is to merely be a member of the
syndicate, but a crummy free lunch is better than no free lunch at all. The syndicate is like the Treehouse Club—only the
really bad boys don’t get to be members. The investment banks all fight tooth and nail up front to be given the mandate to
manage a deal, but there’s an unspoken understanding among all the players that even those who lose out on the management
mandate will get to be a part of the syndicate at selling time. Participation in the syndicate is the ever present booby prize
of the public offering world.

Financial Statements
—This is the real meat and potatoes of the prospectus. This is the section that should be up front. The problem is that this
is the section with the least room for creative input, since disclosure in the financial statements is dictated by a well-defined
set of independent accounting principles. The bankers don’t get a vote here; it’s the timid little bean counters who make
the final decisions on what makes it into Financial Statements. In fact, it’s not so much the fact that the bankers don’t
get to make the decisions on what goes into this section that drives them mad. It’s that the guys who
do
get to make those decisions are the accountants. If a big hitter like a CFO were responsible for the decisions it would be
one thing, but it’s the frigging accountants. Call it the accountant’s revenge, and chalk one up for truth and justice.

For the investor, the financial statements are the only unadulterated statement of historical fact that can be used as a justification
for taking on risk. The prospectus should be read like a Chinese newspaper, start at the back and work your way forward.

The entire drafting process can take anywhere from five to ten full working days. With a working group of twenty to thirty
people, that translates to somewhere between one hundred and three hundred equivalent work days. That’s about a year’s worth
of work for the creation of a document that hardly anybody reads. If one were to add up all the man-hours that go into the
drafting of prospectuses in a given year there might be enough to develop a cure for cancer. The cure probably wouldn’t pay
as well as writing prospectuses does, though.

As associates, our responsibilities at the drafting sessions
were a function of the senior banker on the deal. Some senior bankers didn’t want us to do anything but sit quietly. We were
just there to provide a presence, and as long as we didn’t fall asleep or wet ourselves we were doing our job. Other senior
bankers gave us marginally more responsibility. They would stand up to leave the room and announce, “I have to go make a few
phone calls. My associate here will lead the drafting while I’m gone.” That meant that if the group spent more than ten minutes
arguing about how a single sentence should be worded, it would be our responsibility to state loudly, “OK, let’s keep things
moving here.” It was an impressive skill to be developing.

The associate’s other responsibility once the document begins taking shape is to conform it to the bank’s formatting style.
Every investment bank has a style manual. It’s a book that details every element of prospectus formatting—what size fonts
to use in which locations, where headings should be placed, which lines in the financial tables should be underlined. This
is important stuff, and being on style duty at the drafting sessions was exactly the sort of intellectually challenging work
Rolfe and I had always dreamed that we’d be doing one day as investment bankers. We were determined to become the best damned
style managers Wharton and Harvard had to offer.

Drafting sessions are utterly forgettable. They are slow, painful, and excruciatingly boring. Usually, the most difficult
aspect of the drafting sessions is striking a reasonable balance between the amount of coffee one has to drink to stay awake
and the number of trips one takes to the bathroom to mitigate the diuretic effects of the caffeine.
Mealtime provides the only break in the insufferable monotony. I once asked Rolfe whether he’d ever enjoyed himself at a drafting
session. He thought long. He thought hard. I began to worry that his brain might crack. After much reflection, he said no,
he’d never actually enjoyed himself.

Rolfe and I had been to drafting sessions in Dallas, Los Angeles, Washington, D.C., Montreal, and New York. We could have
had drafting sessions on the beach at Maui, or while flying in a hot air balloon high over the Amazon. It wouldn’t have made
a difference. They still wouldn’t have been memorable.

The associate never knows for how many weeks the drafting sessions are going to drag on. Each drafting session ends with the
scheduling of the next session. The associate understands that drafting is a lot like chemotherapy. There are no guarantees
that the drafting will eventually lead to a completed deal, but without it there’s no chance for success. Each session is
a necessary step in an evil, painful process. At the end of each session, the associate yearns for some indication that the
process is drawing to a close. One day, he gets it.

The senior banker on a deal is the one who pulls the trigger and decides when the drafting sessions are done. This determination
is not an objective process. The members of the drafting team don’t dot the last “i,” cross the last “t,” look around at each
other, and exclaim “by God, we’re done!” It’s much more subjective than that. The lead banker uses an internal productivity
gauge, developed over years of experience with both human nature and the tendency of attorneys to generate as many billable
hours as possible. The lead banker assesses each
drafting session’s accomplishments. When the number of accomplishments per dollar of billable legal time for a given drafting
session falls below some minimum threshold the lead banker pulls the trigger. The banker decides that the time has arrived
to light a fire under everybody’s ass. The time has arrived to start making it
really
expensive to continue wasting time. The lead banker decides to crank up the momentum, and take the drafting team to a place
where dillydallying is not allowed. The lead banker speaks the words:

“It’s time to go to the printer.”

F
rom the time fledgling bankers first begin their descent from on high, they hear about going to the printer. Until they get
the chance to go, it’s one of banking’s biggest mysteries. They don’t know what actually happens at the printer. They don’t
know what they’re supposed to do at the printer. They just know that a trip to the printer is important, really important,
so important in fact that any of the other deals they might be working on take a backseat. They know that if a vice president
or a managing director calls them up and says, “I need you to be at this pitch with me tomorrow,” they can tell him, “Fuck
you, I’m gonna be at the printer.” The printer always takes priority, even over the calls of senior bankers.

Going to the printer is a classic investment banking clusterfuck. Young bankers who haven’t ever been to the printer don’t
know what they’re supposed to do there—they’re expecting the associates in the know to give them some guidance. The problem
is that the associates who
have
been can’t remember anything of substance they’ve ever done there, so they’ve got nothing to tell the associates who haven’t
been. Nobody knows anything, nobody wants to look like an idiot, and nobody will admit their ignorance. It’s a self-perpetuating
cycle of stupidity spiraling into a black hole.

When we first started working at DLJ I cornered Troob one afternoon to find out what went on at the printer. He’d worked in
banking before, so I knew that he’d been to the printer. I figured that he’d have the answers.

“Troobie, man, I’ve got a question for you.”

“Yeah, what is it?”

“The printer, I want to know about the printer. Everybody’s always going there. What do they do there?”

Troob was quiet for a minute. “You know. They go to the printer. They print up the prospectuses there. Why are you asking
me?”

“I’m asking you because everybody’s always talking about the printer. I want to know what happens there. What do you mean,
they print up prospectuses? Why don’t the lawyers just print them out at their office and get the copy center to make copies?”

“Because they need the copies to look really good. They want to have a professional print them out. You know, so that they
can print it on that really thin paper, the stuff that’s like toilet paper. That way the investors can at least use it to
wipe their ass since they’re not gonna read it. You have to be able to have some glossy color pictures up front. The copy
center can’t do those copies on the glossy paper. You know how shitty their color copies always look. That stuff is important.
How can you sell a deal with shitty color copies?”

“OK, I’m with you, but what do we do there? I mean the bankers. Do we go to the printer, put on work aprons, and turn a big
steel crank to help print the prospectuses? I just don’t get it. Are we like those old Chinese guys with big racks of steel
alphabet characters? Do we help load them into the printing presses? Why do we have to go?”

“The bankers don’t do the actual printing. The bankers go there and they sit around doing the drafting that they should have
already done at the lawyer’s office. Then they shoot pool and drink beer and proofread each draft as the changes get put through
by the guys who work there. You do the same shit there that you do at the drafting sessions, except at the printers you have
free beer, free food, a pool table, cable TV, and Nintendo.”

“How can all that stuff be free?” I asked Troobie.

“It’s not really free. The company doing the offering is paying for everything. If you look at the cover of the prospectus
it says something like ‘…expenses related to the Offering payable by the company estimated at $1.5 million.’ That $1.5 million
is mostly the printer fees, the drafting sessions and the travel expenses. They’re the long-distance phone calls we make,
the beer we drink, the sushi we order, and the word processing changes we put through. They’re the color printing on the front
cover and inside cover of the prospectus and the special tissue-like paper we use for the rest of the prospectus. They’re
the cost of the 30,000 prospectuses we print up when all we really need is a third of that amount.

“It’s all about excess. We always have to order more food, drink more beer, and print more prospectuses
than we know we’re gonna need. Most of the extra prospectuses end up on our office floor and on the office floor of the CFO
from the company doing the deal. It usually makes him really happy that he has an extra 10,000 copies of the prospectus for
a bond underwriting deal that’s causing him ulcers because he can hardly pay the interest expense. It’s a constant reminder
to the CFO that he over-leveraged the company.”

“I still don’t think I get it. If we’re just drafting at the printer, then why don’t we do it at the lawyers’ offices during
the drafting sessions?”

Troob gave me one of those “You’re a total frigging dumb-ass” looks and said, “What the hell do you think? Have you ever drunk
beer and shot pool at the lawyer’s office? I don’t think so. That’s why you do it at the printer, so you can drink beer and
shoot pool. Stop bothering me.”

Troobie was only partly right. Thirty years ago there was a legitimate reason for the bankers to be at the printer. The printing
actually got done on site, and the bankers had to be close to the guys with the ink-stained aprons who were cranking copies
off the printing press just in case there were any last-minute changes to be made. Now, though, it’s all electronic. There
are no more ink-stained aprons. There are no more printing presses on-site. The guys who work for the printer wear ties and
sit in front of a computer screen and when the final prospectus is ready to be printed they press a button and some printing
plant in the middle of a field in Pennsylvania or somewhere starts spitting out copies.

So why do junior bankers continue to show up at the printer? Tradition. It’s because printing the prospectuses
is a milestone in the deal process. It’s a sign that the associate has actually done something besides blow hot air for six
months. Going to the printer is symbolic because it means that the associate is actually getting close to producing something
that the outside world is going to see. An associate might bust his ass for a couple of months to jump through all the hoops
he has to jump through to make a deal happen, but nobody outside his deal team really has any idea what he’s been doing. As
far as everybody else is concerned, he’s just disappeared into a smelly black hole for three months. For all anybody else
knows, he could be down in that hole procreating with goats. Parents and friends don’t know why little Johnny is working all
the time.

At the end of the day, there’s nothing tangible except the prospectus to show for the numerous all-nighters and those dark
months of toil that go into a deal. The prospectus usually sucks, and nobody ever reads it cover to cover, but the prospectus
and a Lucite deal toy is all the associate has to show at the end of a deal. It’s not like they’re building houses or making
widgets. The prospectus and deal toys are the associate’s stone tablets, like the ones that Moses had with the Ten Commandments
on them. They’re the evidence, and without them the associate might start to wonder whether their agonizing existence is anything
more than just a bad dream.