Bacon's Rebellion

Democracy Thrives in Sunlight

The New Wave of Wealth Creation: SNL

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by

James A. Bacon
in

Reid Nagle, circa 2007. Photo credit: The Hook.
Reid Nagle, circa 2007. Photo credit: The Hook.

by James A. Bacon

When most Virginians hear the letters “SNL,” they think Saturday Night Live. Perhaps in the future, they’ll think SNL Financial, the Charlottesville-based market research firm just purchased by McGraw Hill Financial for $2.225 billion.

New Mountain Capital, the New York-based private equity firm that purchased 60% of the company in 2011, will grab the lion’s share of that sum. But founder Reid Nagle other senior managers will take much of the rest — about $890 million. That’s a lot of wealth creation for a company that few Virginians had ever heard of.

SNL is a new-era enterprise that deploys Big Data to create massive wealth. The company provides reports on seven key business sectors, drawing upon a global workforce of 3,000 in 23 offices in 10 companies. Four hundred employees are located in the Charlottesville headquarters and another 50 in the Innsbrook Office Park in Richmond. CEO Mike Chinn described SNL’s business model to the Wall Street Journal this way:

We’ve developed a pretty efficient machine for both gathering and selling information. How you collect that information is the same whether it’s a bank branch or a coal mine or a power plant.

Nagle founded the company in 1987 because he couldn’t get a job after working as CFO for the notorious corporate takeover artist Ivan Boesky, who was convicted for insider trading. After two years in New Jersey, Nagle moved the company to Charlottesville, according to a 2007 profile in The Hook. It was not the kind of company that would catch the attention of economic developers. Around that time Nagle nearly ran out of money. “I wasn’t going to make payroll,” he told The Hook. An unsolicited $100,000 infusion saved the day, and he was able to raise another $300,000.

SNL officials told the Daily Progress that revenues had increased every year since its founding in 1987. Launched with a focus on the Savings & Loan industry, the company branched out to other business sectors, aided by acquisitions of boutique research firms. Nagle said in 2011 he would use the cash infusion from New Mountain Capital to continue growth, product development and “provide liquidity to existing shareholders.” It’s not clear from published reports what percentage of the non-New Mountain Capital shares were owned by Nagle, Chinn and other Virginia-based SNL executives, but it was likely a significant number. In 2011 Nagle had described himself as the “second largest shareholder” after New Mountain.

Bacon’s bottom line: Much of Virginia’s wealth creation is invisible to the media and public policy makers. No one would have targeted SNL for corporate recruitment in 1989 when the company was living hand-to-mouth. When asked in 2007 why he located the business in Charlottesville, did Nagle cite Virginia’s, ports, highways, low taxes or business incentives? No. He replied: “Quality of life and access to bright people from PVCC, Eastern Mennonite, UVA, JMU, W&M, Virginia Tech, and other Virginia colleges and universities.”

Remember that: Quality of life and human capital drive SNL-style wealth creation.

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  1. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    This story inspires.

    One aspect of that inspiration concerns how a single individual leading others can make such a big and positive influence in the lives of s many other people and companies in so many ways.

    This story also puts into sharp contrast the flip side of corporate America. The increasing trend in America for its companies today to morph themselves into crony capitalists. This creates a system that undermines free markets. And it throttles many of the benefits derived from vibrant companies in free markets.

    This is so because crony capitalists work to destroy and thwart the creation, opportunity and possibility for success of ever more vibrant and healthy corporate citizens of the kind that benefit all players, companies and individuals alike, helping all to play an ever stronger roll in a free economy. These are the companies we need, ones like the SNL as described in this article.

    This trend toward Crony Capitalism is now too often actively encouraged by our government, and even sometimes coerced by our government. This undermines and corrupts those tasked to govern and those in the “heretofore private sector” whose mission is to create wealth, services, and products for all citizens.

    Hence, more and more CEOs say they have to play the crony capitalist game to survive while others relish and thrive off of it.

    For a wonderful, insightful commentary on these issues see:

    nationalreview.com/article/421664/corporate-lobbying-bad-business?

    1. James A. Bacon Avatar
      James A. Bacon

      Sad to say, Silicon Valley, which once thrived entirely upon innovation and competition, is discovering the payoff from crony capitalism. It’s a disease. No one is immune.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        Boy, is that true!

        And it’s going a lightening speed. How many years ago was it that Bill Gates was dragged kicking and screaming into the Washington Lobbyist Game? Finally, apparently, he had no choice. Washington Government is now set up so that all players in business in this country have to “Pay their Dues” to those who govern.

        In fact, it now appears that this sort of activity is becoming more and more akin to a game of extortion, corruption, and influence peddling, for unfair advantage and/or a protection racket.

  2. Cville Resident Avatar
    Cville Resident

    Another big acquisition of a Charlottesville based business is rumored…..

  3. Cville Resident Avatar
    Cville Resident

    I’d also point out that you’re correct about quality of life….but…..here’s where it gets dicey…..

    Our current economic development efforts in the state aren’t geared towards locating or encouraging businesses to areas with high quality of life. Rather, it is my understanding that VEDP believes that jobs should locate in “distressed” areas and their efforts are more focused on “distressed” areas. I have heard that they frown upon projects in areas like NoVa and Charlottesville b/c “they don’t need the help.”

    You’re correct. Economic development in the 21st century is about small business and entrepreneurs. But the deal is that 21st century small business is also about capital and wealth and education. These tech/finance/clean energy/business process/robotics/health firms require a lot of access to start up capital, an educated workforce, and areas where highly educated people want to live.

    But our state economic development efforts are obsessed with getting some Chinese companies to locate a $10/hour factory in the middle of rural Virginia. That’s ridiculous from a policy-making perspective. Now, there’s certainly some emotional appeal (and I can’t speak to that), but I don’t think it makes a lot of sense for the Commonwealth’s long term fiscal viability.

    As I’ve advocated for years….if the state wants to make a commitment to rural Virginia, it needs to concentrate its efforts in the Lynchburg region. There are at least some elements there that have a chance of attracting true 21st century wealth creation.

    But I’ve got a feeling that we’re not going to see that. I’ve got a feeling that “economic development” won’t focus on places that can truly build wealth for the state. Rather, we will play the incentives game to fight for low wage jobs and employers who put almost no investment in their community to locate a secondary factory in rural Virginia.

    There’s an economic development alternative, but the howls from rural Virginia would be quite loud. Why not focus on quality of life enhancements for the Urban Crescent and select cities (where there’s a pattern of true immigration from other areas) in the rural horseshoe? That’s where real wealth creation (that benefits the entire Commonwealth) will come from.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      I agree.

      I assume the Lynchburg region has like Roanoke the base ingredients of commercial success. It’s the best petri dish for growth around.

      If so, for the sake of efficiency and success, that’s where those with entrepreneurial talent and ambition should be encouraged to go for the benefit of everyone in the state. This is not a zero sum game.

      So perhaps parts of the ways that people think about economic development need to change, given the miracles that are every day wrought by free markets and exchange, and economic mobility and change within those markets. Why is this well established fact is so little understood? It’s painful to watch the waste and loss that occurs because people refuse to see what should be obvious, healthy economic growth is not a zero sum game, it is the precise reverse.

      NYC and Paris mayors want to outlaw Uber? Why?

      Uber generates interrelated waves of benefit for cumulative value (foreseen and unforeseen) that, when aggregated, will accrue benefits whose scope, variety and value will astound, and do it in ways that benefit most everyone everywhere.

      Just look around. People almost everywhere in this world are richer than ever anyone imagined because of what Bill Gates did and started in lieu of staying in college a few decades back, working in his garage instead. Let the Bill Gates of the world do what they want to do, where and when and how they want to do it.

      Or what Monsanto (and or others) started not so long ago that has tripled the world’s production of food when the zero sum experts at Stanford were predicting mass starvation of billions of people within decades unless folks stopped having babies.

      As grand and unexpected as these ideas and accomplishments are, they relate directly to the idea that progress cannot be forced or centrally planned. It never works. Instead it hurts people.

      Natural resources are finite in their quanity but their value and benefits can be magnified exponentially to near infinity by unleashing (and getting out of the way of) creative individuals doing their own thing when and where they want within supportive free markets, instead of being told what to do and how and where to do it by government regulators, or crony cartels under the thumb of governments.

      Let that happen and then what happens in Lynchburg will bring great benefit to everyone in Va, including outlying rural areas that otherwise can’t do as efficiently and successfully what those in Lynchburg can do. The flow of benefits sooner than you think will find their way into the rural areas too.

      1. LarrytheG Avatar
        LarrytheG

        Lynchburg has really crummy schools.. they’re not serious about K-12 education.

        I don’t see how you do economic development for ANY area that does not see education as critical.

        In fact, if I were KING – I’d tie any potential economic help from the state – to the aggregate academic performance of their K-12 schools.

        the other big negative for Lynchburg is the absence of significant areas of hard science, business and medical in the Regional Higher Ed schools.

        I just don’t see how you “grow” any area that has such negatives in education.

        1. Cville Resident Avatar
          Cville Resident

          Interesting comments from Larry and Reed.

          I think the real issue is this: No one would seriously dispute that market incentives spur innovation. In my opinion, an innovative and entrepreneurial economy is far superior to a planned, centralized economy.

          However, it’s also difficult to look at history and find social stability in societies with high inequality.

          And that’s the public policy question of our times: How do we avoid a 10/90 economy where 80% of wealth/income flows to the top 10% while maintaining a market-based economy?

          I’ll give you a pretty stark example. I have family in Nebraska that own a farm. Luckily, the younger generation went to college and majored in ag and got a minor in computer science. When I visited them last summer, I was amazed. A “farmer” in the 21st century is much more of a businessman than a farmer. They were working on automation, following worldwide trends in commodity prices by the minute just as if we were on 1980s Wall Street, talking about mergers and acquisitions with other farms/ag operations. Tech is as important to today’s farmer as it is to anyone else. And when I talked to them, it became apparent that even the “yeoman farmer” exalted by Jefferson is disappearing. Farming is just as much a 10/90 game as everything else in the economy. The “sharps” who are much more business/tech oriented are really dominating agriculture and taking all the gains. Most of the old ones are selling out/retiring.

          When even ag is turning into a 10/90 game, it’s hard to see how America is going to maintain social stability.

          1. LarrytheG Avatar
            LarrytheG

            I’m not a believer in govt policies to make people more equal in outcomes.

            I don’t think you give money to people so that we maintain a more equitable economy.

            But we do have to ask why we have the inequity and whether or not everyone has the same opportunity to succeed.

            this is not rocket science.. you can look at 3rd world countries and easily determine why the poor – are poor.. it’s not because they are lazy or unmotivated.

            a primary metric for nations is – literacy… and the correlation between a lack of literacy and an inequitable society is – literacy.

            in the 21st century – it’s much,much more than speaking in one’s own language.

            It’s “literacy” involving science, math and technology… to understand more than words – but concepts.

            we have an underclass because they never get enough education to successfully compete for 21st century jobs.. We have to import educated people right now with Hb1 visas…

            Many of our major technology companies have corporate leaders with foreign surnames..

            Our schools are not pointed to 21st century needs – both college and non-college … we “graduate” non-college who are not equipped with the skills need for non-college jobs..in the 21st century.

            we talk about economic development in Va as bringing companies here . Why would they come here in the first place if our workforce is not qualified for their jobs?

  4. LarrytheG Avatar
    LarrytheG

    I’m in the same Church as Cville Resident but a different pew.

    I don’t think we should turn down jobs for Rural va but it should not be our primary ED efforts.

    But I also don’t think we should count on the richer parts of the state to continue to pay generational entitlements for rural Va either.

    You want to educate the kids in rural Va to a standard that allows them to move to where good jobs are.

    But you also want to invest in rural Va infrastructure itself – for the 21st century as part of the education component that can also be used for economic development.

    I do not think any policy that essentially advocates abandoning rural Va is anymore a viable strategy than abandoning the inner cities.

    a viable strategy. All that will do is create a permanent underclass that will continue to need entitlements and while we will never get to a point where no entitlements will be needed – we don’t want a policy that ends up increasing the number of people on entitlements.

    one more thing. New companies are not “creating” net new jobs… necessarily. In many cases, what they are doing is competing against other companies – to do something better, faster, cheaper, etc.

    that creates lost jobs also… the drone that replaces a crop duster or powerline helicopter – takes those jobs.

    Big Data takes other jobs left and right.

    People who get cell phones – get rid of their land lines.

    people who buy LED TV’s get rid of their CRT TVs.. even though they still work. In our area – GOODWILL will not even take a working TV any more.

  5. LarrytheG Avatar
    LarrytheG

    The job creation game is just that. We hope that for every 100 new jobs that a few will be game-changing jobs.. ones that actually create value and not just cannibalize existing jobs.

    a good example might be a technology that provides something of value not provided before.

    a small example – blind -spot monitoring mirrors.. it’s not taking other jobs – unless you want to say collision repair folks… or hospitals spending gobs of money to save the life of someone injured in blind-spot accident.

    lives are saved.. property damage is reduced, etc… that frees up money for other things…

  6. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Cville Resident –

    Above, with your farm analogy, you make a very interesting point and raise an equally interesting question:

    “And that’s the public policy question of our times: How do we avoid a 10/90 economy where 80% of wealth/income flows to the top 10% while maintaining a market-based economy?”

    I have not given this the thought it deserves, and I suspect I am not alone.

    But, like so many such important points and questions they raise, I suspect that causes and affects and solutions are full of paradox, endless angles, unappreciated consequences, caveats, and surrounding cultural and political circumstances. That said:

    For starters, perhaps “the 10/90 economy where 80% of wealth/income flows to the top 10% while maintaining a market-based economy” is not always the problem, and indeed in many cases it is the most likely solution or at very least the base ingredients of a whole new raft of solutions.

    For example, what difference does it make if Bill Gate makes thousands of times more in an hour that most Americans make in a year?

    Or that 10, 000 of his employees make 80% the wealth generated each year while a random sample of any given 90,000 American share the 20% balance of that wealth?

    So long as the living standards of the 90,000 people continue to rise from where they were before because Gates and his crew generated all the benefits and wealth they did and did so mostly likely in untold myriads of ways that were cumulative almost beyond comprehension, all benefits in which that 90% sample got a share of a far bigger pie than otherwise, hence lifting all boats.

    Consider here too all the incredible offshoot benefits.

    Visit for example a place of great individual wealth, where these folks live, and figure out how it is all spread around far and wide in so many ways, many of which you would never expect or guess.

    Recall too that:

    Even in the horrific times of the late 1900’s turn into the 20th century, the Gilded Age, the age of the Carnegie, Fricke, Gould, Rockefeller monolopies, the so Called Robber Barron’s with their gross exploitation of working people,

    Even here the ultimate pay-0ff to society as a whole over time has been simply incredible.

    This in not to say that TR’s trust busters were not essential to fixing gross abuses.

    But it is simple to suggest the essential point that the problem of income is seldom really about “how rich the rich are” – but rather how productive the rich are within the system they operate –

    And the only model that has ever worked even well (absent special limited circumstances) are free markets under appropriate law, and some form of workable representative government, without demagogues.

    There are many other things to look at and consider here, of course.

    1. LarrytheG Avatar
      LarrytheG

      the basic problem with the 90-10 is can you have it without the country becoming a 3rd world country?

      that’s not hyperbole.

      Are we going to give “free stuff” to people who can’t make enough money to provide for their own welfare?

      serious question.

      If you listen to a lot of conservatives – they are opposed to the free stuff.. they want to cut it out. They say the way to balance our budget is to cut entitlements.

      right?

      I’m opposed to giving people free stuff if they are not working and are able-bodied but what are you going to do with people that work full-time 40 and even more hours a week and they still cannot afford food, shelter and health care?

      If you donj’t have a minimum wage – are we going to make up the difference in entitlements?

      If Dad goes to jail are we going to pay to feed mom’s kids and to provide mom with day care so she can work?

      are you going to truly educate that child so he can grow up and get a job and not deal drugs?

      Sometimes I think conservatives want to run away from these issues. They want a simpler, less complicated world to live in where hard work and personal initiative overcomes all obstacles…

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