Are Private Equity Buyouts The Devil's Work?

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  TheOpsMgr04/08/08 Report as spam
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  Some Interview with private equity

  As part of blogging the divestment of Reed Business Information from Reed Elsevier I have been lucky enough to interview several senior private equity partners. You can read those here (http://divestmentwatch.blogspot.com/2008/03/interview-with-private-equity-part-one.html) and here (http://divestmentwatch.blogspot.com/2008/03/another-interview-with-private-equity.html)
  
  One key view that they both held was that Private Equity plays an important role as a "professional shareholder" and in making sure that the management's interests stays aligned with the shareholders best interests (in affect a solution to "the problem of agency").
  
  One argued that private equity was the "21st century model of ownership".
  
  His argument is that if you trace the history of company ownership you pretty much get three stages:
  
  * 19th century ? the entrepreneur and family-run business ? 100% owner control, but hard to access capital to grow the business
  
  * 20th century ? public companies ? access to liquid capital via the stock market but surrender control to "managers"
  
  * 21st century ? Private Equity ? 100% owner control + liquidity via private equity funds ? "best of both worlds"
  
  It's an interesting thesis!
  
  Anyway, hope over to the links if you want to read more!
  
  -TheOpsMgr

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  ksovak@...04/08/08 Report as spam
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  RE: Are Private Equity Buyouts The Devil's Work?

  I believe the biggest rap on PE deals is the lack of transparency in their financial operations. However, this is more of an issue of private vs public than a general fear among consumers. PE firms have been shown to create greater value than the public entity they purchased. Their power will only increase as more positive results make the mainstream media.

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  ema@...04/11/08 Report as spam
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  But They Are A Necessary Evil

  I seem to view this issue from a different angle, yet in tanderm with Prof's presentation.
  When viewed from the impact of buyouts on overall economy, then losses in terms of job etc are insignificant, because either way employees reduction is bound to come - in non performing public firms you don't guarantee job security. Worse, businesses are meant to be profitable so if employee input does not translate to that, too bad...
  Putting management efficiency back in these malfunctioning firms is key deliverable for the venture capitalists. It drives profitability, provides indices for future ROI, and subsequently will influence the salability of the firms afterwards. If the capitalists achieve that early enough, why recommend their prolonged stay? In the first instance the public would not be given to investing in a malfunctioning firm that is yet to have a footing.
  I am convinced that consumers are the better with buyout firms, because such firms survive re-engineering or restructuring etc only if they offer better stuff to guys in the market.
  
  Yes, we may advocate introduction of some humane practices to buyout business. For instance, conditions for going IPO should be redefined to integrate some form of security to the public......But let's not kill the practice

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  ejpmartin@...04/08/08 Report as spam
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  RE: Are Private Equity Buyouts The Devil's Work?

  Couldn't agree more with the HBS Prof... just because PE houses make a lot of money, it causes envy. sooner or later, IBankers will be attacked by a similar notion. Perhaps we should change our tagline to 'Do No Evil'

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  smedvid04/08/08 Report as spam
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  RE: Are Private Equity Buyouts The Devil's Work?

  I agree with most of the discussion; however there are exceptions. Look at equity companies like Cerberus who recently purchased Chrysler and have a majority ownership of GMAC. Only time will tell if/when they decide to chop up the companies and drop staff... Also, take note that "Cerberus" is the dog which gaurds th gates of Hades... and take note of their track record also: http://money.cnn.com/2007/08/17/magazines/fortune/benner_aegis.fortune/index.htm

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  isnogud04/09/08 Report as spam
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  RE: Are Private Equity Buyouts The Devil's Work?

  I am still puzzled by the reasons(the absence therefof) why board of such "weak" public companies stop short of trying this re-engineering by themselves. It seems from this article that the "financial incentives" to try it out are more than enough. Is taking a company private such a necessary condition for the magic to operate ? Not sure...