Taking Henry Silverman Private

By Justin Fox

On the morning of April 19, the private-equity firm Apollo Management acquired Realogy--the company behind real estate brokerages Coldwell Banker, Century 21 and ERA. It was not, by modern standards, a huge transaction: the sale price was $8.5 billion, nowhere near the $39 billion that private-equity titan Blackstone Group recently paid for Equity Offices Trust.

Realogy's passage into private ownership was nonetheless a landmark--because it marked the end of chief executive Henry Silverman's career as boss of a publicly traded corporation. Silverman, 66, is no household name, but he may be one of the iconic figures of modern American capitalism. Either that or "the Zelig of the corporate world," as he once called himself, evoking Woody Allen's cipher of a character who shows up at major historical moments.

Silverman really has been a player in just about every important business trend of the past three decades. He has watched the rise, fall and resurgence of private equity--what used to be called leveraged buyouts, or LBOs--from inside and out. "There are certainly cycles," Silverman said, when I talked to him a few days after Realogy went private. "And in the current iteration of the capital markets, clearly the private-equity guys are sitting in the catbird seat."

Two leading catbirds, Blackstone's Stephen Schwarzman and Apollo's Leon Black, happen to be old pals of Silverman's. In the 1980s, Silverman too was an LBO artist, working alongside corporate raider Saul Steinberg and funding his exploits with Michael Milken's Drexel junk bonds. Then, as a partner at Blackstone in the early 1990s, he sniffed a change in the financial winds, cobbled together a few struggling hotel chains (starting with Ramada and Howard Johnson) into Hospitality Franchise Systems (HFS), took the company public and stayed on as CEO.

While private equity plodded along, Silverman built HFS into one of the stars of the 1990s stock-market boom. The company expanded into real estate, then rental cars (Avis). Its share price rose almost 2,000% in four years, and Silverman's net worth rocketed toward $1 billion. He was hailed as a genius. Then, in 1997, he merged HFS with direct-marketer CUC to form Cendant. CUC was an e-commerce pioneer, giving Silverman a tangential link to the Internet bubble. Under CEO Walter Forbes, now awaiting jail, CUC was also a pioneer at fabricating earnings, Silverman later discovered. This was the first of the big end-of-the-century accounting scandals, and though Silverman and Cendant survived it, the disaster cost him both his genius certification and most of his net worth.

His paychecks remained large enough to attract criticism though, and even as Silverman steered Cendant to a profit peak of $2 billion in 2004, investors were unimpressed. So he heeded their grumbling and broke up the company. The hotels became Wyndham Worldwide, rental cars the Avis Budget Group, travel distribution (Orbitz, Galileo) Travelport, and real estate Realogy. Blackstone bought Travelport last year, and now Realogy belongs to Apollo.

This trip from private equity to public conglomerate and back wasn't pointless. According to company calculations, if you count every spinoff and asset sale--plus a $2.8 billion shareholder lawsuit payout in the wake of the CUC mess--a dollar invested in HFS when it went public in 1992 would be worth more than $14 now--a 22% annual return, or more than double the performance of the S&P 500. Which means Silverman is probably worth listening to on one of the great questions of our day: Is it better for a company to be traded on a stock exchange or privately held? "I was asked by the CEO of one of the private-equity firms what my advice would be as to whether to stay private or go public," Silverman said. "My answer was, 'When your stock is going up, being public is great. When your stock is not going up, it's not so great.'"