Back in the day, no one in Brooklyn had air
conditioning.  Now, we could deal with that, but the real killer was
that far too many people had plastic slipcovers on their furniture.  Hot apartments and vinyl seats: a deadly combo! 

After
a eighteen innings of stickball out in the summer swelter, we'd all
rumble-tumble over to someone's house for video games, lemonade, and,
if we were lucky (or unlucky depending on whose mom was cooking,)
dinner.  Always in a big hurry to sit down and start playing games, we
paid little mind to the inevitable pain of getting up once our
leg-sweat had bonded our skin to the infernal plastic.

And
the most bittersweet place to visit was the DiPietro place.  There, the
plastic slipcover found its most profligate use: the faux-rococo decor
lay beneath two layers of 4-mil thick clear vinyl . . . that
stuff was everywhere, even on the lampshades!  But it was all worth it:
the always-elegant Mrs. D was an outstanding cook and my buddy owned
the only Intellivision on a block of Ataris.  And besides, the amiable malevolence Mr. and Mrs. D directed at each other lent a sitcom air to the apartment.

I'll never forget one particularly goofy exchange.  Mrs. D had just brought a dress home from Gimbels and proudly announced to us that she'd saved 20% by buying off the clearance rack.  Mr. D practically spit his Ballantine all over the yellow shag and bellowed, "Izzy, just 'cause ya got twenny poicent off don't mean ya saved anyting.  Fer cryinoutloud, ya still spent money, maybe twenny poicent less than ya would've, but still more than you should've."  

And
recently, I've been having  lot of flashbacks to those long-lost
languorous afternoons at the DiPietro's.  At least four (remember, I
don't blog until I get more than three data points so as to keep
confidentiality) LBO-sters raising funds have said to me recently that
they were seeing "great deals" again: companies that were previously
selling for X times EBITDA were now selling for X minus 1 or X minus
1.5 times. 

Guys: just because something
is cheaper than it was, doesn't mean it's cheap.  As my buddy, Du,
says, elegantly updating Mr D, "twenty percent off is still eighty
percent on."

Now I've been spared the
"things are suddenly cheap" reasoning by my own managers; I like to
think that all the weekend ice fishing on Lake Wobegon clears the
head.  But I do worry there's a lot of rationalization out there right
now.  And it all starts with the poster-child rationalization: the
assertion that downturns are the best time to invest.  I'm not saying
that they aren't, I'm just a bit suspicious of the data that people
cite.  Inevitably, someone whips out a spiffy chart that overlays
vintage year returns on GDP growth figures.  The line goes down, the
bar goes up.  Beautiful.

But on further
review, the number of recessions that have taken place during the
mature years of the private equity "business" can be counted on about
half of one hand.  Not exactly what one would call a robust data set. 
It's just confirmation bias; people look for data that proves their
hypothesis, no matter how meager that data.

And
remember, it wasn't all that long ago that people were saying that
seven was the new five, in terms of multiples one could pay for a
business.  But if prices have come down two turns of EBITDA, does that
mean that the old five is the new seven?  That just seems like a return
to normal pricing.  And normal just isn't good enough right now. 
Things have to get a whole lot cheaper.  After all, the public markets
are on sale and the opportunity costs of capital are extremely high. 
Moreover, people are assigning an incredible amount of utility to
liquidity.  Drawing capital today for a new investment means that deal
has to be an absolute screamer.

And if
folks focus on screaming deals, not just places to dump some dollars,
we'll hopefully be able to say in retrospect that this turned out to
be another recession during which it was a good time to invest.  I just
hope that when we say that, it will be because people invested in great
companies at good prices, not because we're seeking confirming data and
confusing correlation with causation.