03/11/2011 04:54 pm ET | Updated May 25, 2011

Means, Ends and Money

The media has long taken it on faith that private equity is an evil, possibly criminal, enterprise, run by money-hungry fraudsters who bury their companies in debt, rape them for fat dividends and charge onerous fees to their investors. (Who can forget the old Businessweek's infamous "Gluttons at the Gate" cover story?) So it was a bit jarring a few weeks back to come across a piece on lamenting private equity's inability to buy really large companies that just a few years ago were easily within reach.

"It's a significant loss of clout that shows no sign of abating, and the big losers are those with megacap stocks in their portfolios," writes Dan Primack, Fortune's resident private equity expert. "No longer can such folks buy, hold, and wait to be cashed out by free-spending financial sponsors."

So let's get this straight. Private equity's inability to do megadeals is bad for shareholders of big public companies -- the piece lists investors in Microsoft, Boeing, CVS Caremark, Home Depot, Oracle and United Healthcare as examples -- "who must now content themselves with hefty dividends and steady revenue growth" rather than benefit from the quick payday that a private equity sale could bring.

Perhaps Primack was simply trying to make his piece relevant to Fortune, which has always aimed its content at public shareholders (when it wasn't fawning over CEOs) and has long preached the supremacy of shareholders' interests. But there's something unsettling here. The media has spent years painting private equity as a destructive villain. Is all that forgiven if it means that holders of megacap stocks can make a quick buck? Put another way, do the ends justify the means?

Shareholders seem to think so, as evidenced by the recent high-profile, controversial buyouts of two consumer-brand icons, J.Crew and Del Monte Foods. Both deals, which feature some of the biggest names in private equity, were the result of conflict-ridden, faulty processes, and for that reason, both were the subject of lawsuits in Delaware. But they were both eventually approved by shareholders, who received a high premium for their holdings.

This presented a problem for a media that's usually all too happy to call out private equity firms for the merest hint of untoward behavior. Indeed, a segment on CNBC about the two deals was headlined "LBOs -- Last Legal Scam" and carried a crawl reading "Why management-led buyouts are scamming investors out of money." But for all that graphics bluster, host David Faber couldn't help but point out that both deals carried high multiples and juicy premiums. "Why isn't that good for shareholders?" he asked his guest, Stuart Grant, co-founder of Grant & Eisenhofer, the plaintiffs' law firm on both the J.Crew and Del Monte deals.

Grant gamely tried to explain that the problem is the flawed processes behind the deals and the lack of any real competitive bidding. But that message was largely lost on CNBC, given the fact that shareholders of both companies fared fairly well. Who cares about process when shareholders are making money?

But when shareholders are losing money, well, watch out. That's when the media becomes obsessed with process -- and is pretty sure the process isn't just flawed, but illegal. Remember Analystgate? That research analysts existed more to serve investment bankers than investors was an open secret on Wall Street and in the media for years. It only started garnering outraged headlines (and possible perp walks) when the dot-com bubble burst and people lost money. Before that, everyone just shrugged -- and went on counting their gains.

Something similar is now happening in the wake of the financial crisis as the media continues its collective handwringing over the fact that not one Wall Street bigwig has gone to jail -- a handwringing that grew more intense after "Inside Job" director Charles Ferguson lamented the lack of financial jailbirds during his acceptance speech at the Academy Awards and was met with wild, approving applause. This isn't to say that no criminal activity took place during the run-up to the crisis or that investigators shouldn't be digging to find and punish wrongdoers. But what, exactly, makes the Oscars glitterati so sure that financial executives belong in jail?

The answer is that lots of people lost lots of money, which seems to be proof enough that the financial system is not just seriously flawed or wildly unfair, but downright criminal. It's funny. That's what people thought about private equity not long ago. But now that shareholders are eager for gains, nobody seems to mind.

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Yvette Kantrow is executive editor of the Deal magazine.