Money Machine

Chapter 3The Craft of Private Equity

In 2002, private equity—acquiring or investing in private companies by financial investors—was still a rather nascent industry, although its roots could be traced back to the corporate takeovers of the late nineteenth and early twentieth centuries. That era, often dubbed the Second Industrial Revolution, was marked by technological progress and the rise of the modern financial system, in which banks and stock markets channeled massive amounts of private capital into such megaprojects as steel making, motor vehicle manufacturing, and railway construction.

One early deal that could be considered private equity, although it was not called as such at the time, was the acquisition of Carnegie Steel in 1900 by the American financier John Pierpont Morgan. Morgan's power was so immense that he was credited with creating the first billion‐dollar company in the world—United States Steel Corporation. He consolidated a vast swath of the country's railroad system under the Northern Securities Company, which had to be broken up by President Theodore Roosevelt on antitrust grounds. He was also credited with rescuing the country from financial ruin in 1907.

J.P. Morgan bought Carnegie Steel for $480 million, equivalent to about $15.6 billion in 2021 dollars. He was a man of immense financial power and capabilities, but when he died in 1913, Morgan's personal wealth was estimated to be merely $80 million (about $2.2 billion in 2021 dollars)—a respectable ...