“Net Net”:  Financial Expression of the Day

Breaking bad

Like Heisenberg, the i-banker wants to know the net net: Are we gonna do a deal?

“Net net,” noun phrase, the ultimate result or outcome; also adverbial phrase, in summary.  Usage note:  Because this term can be employed as either a noun or an adverb, one hears it fairly often in the financial field, which is unfortunate because its utterance is about as annoying as stepping in dog turd.  It’s obnoxious because the user of the term often seems to be implying that he has no interest in hearing the current speaker’s full message because the former is too busy, intelligent, and important for such silliness.  Someone asking for the “net net” frequently means:  “Spare me all your windbaggery and just give me the bottom line.”

So after the associate has spent 19 hours a day for the better part of a week creating a 20 tab merger model in Excel and a 95 page pitchbook, he’ll be summoned to a vice president’s office to review the material.  Eyelids twitching from lack of sleep but hoping to talk at least a little bit about all his work, he’ll begin to explain the financial assumptions that went into his analysis.  The typical VP will immediately interrupt him, offer no acknowledgment of his underling’s lifespan-shortening effort, and cavalierly ask, “So what’s the net net?  Is the deal accretive?”  By asking this question, the VP wants to know whether the acquiring company will report higher earnings per share after factoring in all the costs of a takeover.  In fairness to the VP, he’s right to ask this question because investment banking clients (CEOs and CFOs) are obsessed with their companies’ stock prices for almost entirely selfish reasons, usually to their companies’ long-term detriment.  If his indentured servant gives him a negative response, the VP won’t spend another second looking at all the output, he’ll simply tell the junior banker, “Do I have to do this myself?  Just assume enough cost savings to make this thing accretive.  Then email me the file because I’m leaving in about half an hour.”

The VP doesn’t really care about the merger model (or the ton of work the associate has done).  It’s just a means to an end.  He just wants to “do a deal,” and any deal will do:  merger, acquisition, sale, spin off, recapitalization, refinancing, you name it.  “Net net,” he wants to convince the client to do something that will generate an investment banking fee.  If he could earn a fee from convincing his client to purchase a floppy disk manufacturer, then he’d happily tell the client that cloud computing was just a fad.  The investment banker is nothing more than a highly paid deal processor.  If he had more intellectual curiosity, he’d be an industry analyst.  If he had more interpersonal skills, he’d be an equity or bond salesman.  If he had the courage of his convictions, he’d be a trader.  Instead, he’s opted for the net net:  “Are we gonna do a deal or what?

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One thought on ““Net Net”:  Financial Expression of the Day

  1. Pingback: Private Equity Gambling with Old People? Guy Hands on Verge of Another Fiasco | Bud Fox News

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