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Class Wars

Posted by Susan Scrupski on March 14, 2006

There are a lot of rumors floating out there suggesting why the merger imploded. Interestingly, many are pointing the finger at EquaTerra– alleging that EquaTerra is unprofitable, has performance issues and debt problems on some major contracts. Now granted, I've been AWOL for a spell in this market, but I found it highly unusual that TPI, whose reputation has always been the epitome of inflexibility and well, ahem (nous parlons la vérité ici), arrogance– was looking innocent and victimized in some way. Huh? First of all. I have pretty solid information that EquaTerra is not unprofitable and there are no debt issues/repayments or credits being made to unsatisfied clients there. Whether or not there are performance problems on specific deals, who knows? Show me an advisor/vendor that doesn't have a dissatisfied client in the portfolio. That doesn't surprise me. What does surprise me is this spiraling negative spin in the market against EquaTerra. Where is it coming from? What is the motivation behind it?

As for as the intricacies behind the breakdown of the deal, our understanding (and we're pretty confident here) is that the deal finally broke down over distribution of equity on the part of the private equity class investors. For some of the terms and conditions to change the way some of the investors wanted it, TPI recognized it would create problems– they knew the combined company would ultimately fail if they moved forward under the PE investor's scenario. Remember, Monitor Clipper Partners (MCP) had the lion's share of the deal, as they are the owners of TPI (important fact). Oak Investment Partners could have equally been difficult, but certainly had a fraction of MCP's interest. Our calculated guess is it was MCP that was the final coagulant in the deal and forced the hemorrhaging.

So, in the end, as I was getting closer to what actually happened in that last week– leading up to what I believe to be an amateurish, unprofessional dis-engagement in the form of their hostile breakup release, I started feeling sorry for the principals of both firms. Even Denny. Who still hasn't returned my inquiries on this. On the one hand, it started getting very complicated to follow how these M&A transactions work with their preferred positions in the stock and their investor rights, etc. On the other hand, I started to feel like this was a private affair and I really shouldn't be meddling in their business. (Weird. I really felt that way.)

So what does it all mean? Not much. The question that remains is what will TPI (read: MCP) do now? Where will they go from here? TPI can't pull off an IPO on their own without more bench strength. EquaTerra is a young company. Their options are more varied. Their greatest challenge right now appears to be an image problem. That's fixable. The wild card is MCP. Interesting. What do you think?

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One Response to “Class Wars”

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