Any idea(s) about how the world will look like in the aftermath of the current private equity frenzy?
Nowadays, there's plenty of talk about the activity of private equity. However, less to no thought has been put in how the world would look like in the days after, at least publicly.
Are private equity funds here to stay? How is the world to look like in either case?
Clarification added June 2, 2007:
Les, you bring an excellent prescriptive feature of the future for I also happen to think the minority shareholders need better protection--in fact it happened to me as well as once and investor in COREL.
Clarification added June 5, 2007:
Marc, more clarity about the majority round the PE interests is necessary. I am not saying that some shareholders in minority should be able keep a company hostage, but wonder about the majority round the PE interests for PE rarely hold the majority of the shares.
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At a different level, especially after the 2001-2003 corporate cleanups whereby excess capacity and workforce have been trimmed, the experience of people like Joe Martinez should make us wonder about the costs and societal impacts of the activity of PEs.
In any case, my curiosity is more about changes at macro-level that are likely to stay with us--like funding companies' expansions by issuing junk-bonds, energy trading, Sarbox, etc..
Clarification added June 9, 2007:
From Reuters, By Martha Graybow
NEW YORK (Reuters) - U.S. shareholder lawyers are pouncing on private equity buyouts of public companies, bringing a string of lawsuits claiming the deals are unfair to investors and sometimes only serve to enrich top executives.
Private equity has become a hot area for plaintiffs' lawyers, who have challenged buyouts at companies including Lear Corp. (LEA.N: Quote, Profile, Research), Topps Co Inc. (TOPP.O: Quote, Profile, Research) and in a new case filed this week, Ceridian Corp. (CEN.N: Quote, Profile, Research).
Typically in these cases, shareholders argue that managers accept low-ball offers because they have cut lucrative deals for themselves with the buyers that might allow them to continue running the company and get an equity stake in the new private entity.
More @ http://www.reuters.com/article/ousiv/idUSN2427533920070607?src=cms
Clarification added June 14, 2007:
A few days ago I learned about the French officials' investigating some allegations, hard to prove otherwise, of collusion among private equity companies to the detriment of the most. Now, Financial Times publishes the opinion of Mr. Anthony Bolton, manager of Fidelity Special Situations Fund, that "Boards must stand up to minority activists."
Published: June 11 2007 03:00 | Last updated: June 11 2007 03:00
Occasionally in this business you come across events that change the investment landscape - an episode that alters the relationship between shareholders and the companies in which they invest. I believe such an event happened in March this year and it relates to Cadbury Schweppes.
For more, follow this link: http://209.85.165.104/search?q=cache:g0JF0juPxcYJ:www.ft.com/cms/s/a76136ae-17b8-11dc-86d1-000b5df10621,_i_rssPage%3D883d080c-3010-11da-ba9f-00000e2511c8.html+boards+must+stand+up+to+minority+activists&hl=en&ct=clnk&cd=1&gl=us&client=firefox-a
Clarification added June 15, 2007:
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Reuters has it that
"Blackstone says tax changes could hurt value
Fri Jun 15, 2007 6:47PM EDT
NEW YORK (Reuters) - Blackstone Group LP (BG.UL: Quote, Profile, Research), which is preparing to go public later this month, said on Friday that proposed U.S. Senate legislation on the taxation of private equity firms could materially reduce earnings and lower the partnership's value."
Good Answers (6)
Les D
Software Quality Assurance Lead
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A wild guess, many of the private equity deals, explicitly have plans to transform assets back into the public markets in a moderate time frame, some by breaking up multi-business units, others by exploiting their leverage or cost cutting first. I suspect that world will look similar after the current surge is finished.
I would also suspect that dollar weakness and integration of China and India into the global economies will be more of a factor in the next decade.
With that thought in mind, in spite of expectations that many private buyouts will result in re-issues, foreign reinvestment of cheap dollars could result in a significant change in ownership patterns. A competition between overseas buyers, and US institutional buyers would probably increase yields on re-issues.
While scale and attention is up, private equity operations have been always been a part of the markets and so will continue. It is possible, that if ethical problems become a big issue to lawmakers, that the industry will become more regulated. My evil wish, due to being singed a bit by merger/reorganizations/buyouts is that there be a mandated premium for investors forced out of a position by such deals, an extra payment to the minority that does not approve.
Having just been laid off by a private equity held company after 30 years of service, my view is they place the quest for $$ above all else. Loyalty, trust, integrity are not values they possess.
Private Equity has always been around. The aftermath of a bust will provide distress/bankruptcy investment opportunities.
This is no different than the corporate arbitrage of the '80s. Greed and gutting behind the wall of privately held corporations.
During the process I think there will be a lot of EEOC suits, a further erosion of unions.
Ultimately enough people of quality will leave these organizations to create companies that put the work/life/profit equation into a balance they feel is proper, and will attract better new blood over leached, stressed, private equity-owned companies. At which point "nice" companies will have the capital to start acquiring some of those PE companies, who will get their payoff. At which point they can start acquiring distressed "nice" companies.
Ah, the circle of life... Or is it the food chain of life?
Marc A
General Manager at dē-ĕm 3
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Private equity funds are simply another facet of market dynamics. When the majority of shareholders in a given company vote to do something, the minority have no right to demand resititution. This is a purely democratic operation. It IS fair - just not always what the minority would like - but then if the minority always got their way, companies would be run like the some governments - at the mercy of special interest groups! If you invest in order to have control of a company's direction - then you need to be careful where you invest, and you need to understand that a bigger investor gets more control than you. That's just the way it is. If you invest in a company for the expectation of financial gain - then keeping an eye on PE activity is as important as watching the company's financial results and market mindshare - If your investment is at risk due to PE activity - cut your losses and get out - but don't try to blame the PE firm. They are just exercising their right to buy and sell, and manage the control they gain by doing so. (Just like you!)
This is my personal view:
Most public companies keep acquring new companies to get fatter and to keep the top-line and bottom-line growing in order to keep shareholders happy. Then at one point they become sort of ineffecient/too big to keep doing it so they are ripe for private buyout. Then reverse engineering starts, things get undone and parts start getting sold back again in the public equity market.
* This reduces volatility for institutional and personal portfolios and
* Wall-street brains have one more opprotunity to get paid handsomely.
To answer the main question, when public equity markets get sour, private equity investors will come to reality and PE as an asset class will mature. Then WallStreet will have new financial invention and we will have something new to ponder/speculate on such boards.
