The
PE bull run could soon be over Accident? Call an ambulance. Robbery? Call the cops. Fire? Call the fire brigade. An under performing business? Caught you there, didn’t we? No, dear investors, there isn’t any emergency number for this malady, at least not yet! But as recent trends across the globe indicate, the panacea for hapless managers of such companies increasingly happens to be private equity (PE). And the deluge of money PE firms are pouring is sending a wave of frenzy, excitement and also fear across markets.
Last month, a whopping $48.5 billion for Bell Canada (a 127 year old telecom operator in Canada) by a group of private equity firms led by Teacher’s Private Capital, set a new benchmark in the history of PE investments, a record that was previously held by the $45 billion acquisition of TXU Corp. by KKR & Texas Pacific Group. While KKR has made huge strides, it has often run into opposition from another PE giant Blackstone, which has a leg up, thanks to the acquisition of Equity Office Properties for $38.9 billion and an offer of $26 billion for Hilton Hotels. Gloated Michael Chae, Senior Managing Director, Blackstone, on the Hilton offer, “Blackstone’s real estate and corporate private equity funds collaborated on the acquisition of Hilton, demonstrating Blackstone’s unique ability to undertake such a transaction.”
Going against the tenets of conventional wisdom, these PE firms are in fact falling over each other in a race to decide who gets to cough up the billions for underperforming companies! Not for them are basic business jargon like corporate vision & strategic planning. Rather their philosophy is buy, strip & flip, a philosophy that wins them bouquets & brickbats alike. The basic fear is that they overburden the companies they acquire with debt and can bring company valuations to junk. This downside also gives companies that are under the PE umbrella an additional benefit – management that is overloaded by a substantial debt burden is more likely to be frugal in its handling of company operations.
As per the leading index provider Standard & Poor’s (S&P), there were only 16 pure private equity listed entities with a daily turnover of more than $1 million and a market capitalization greater than $250 million. As of 2007, these numbers have nearly doubled, S&P stated. The company has released a Global PE Index that includes 25 top PE firms across the globe that meet its specifications. S&P admits that the success of PE firms in terms of market valuations made it inevitable to have a separate index in order to track their performance.
While it may be boom time for dollar rich PE firms at the bourses, there are many who feel that this success story is not going to last very long. Firstly, the ever rising interest rates are making it tough for PE firms to be able to extract value, even with their rather ruthless methods. Secondly, in a mad rush to acquire companies, they are competing not just with each other, but also with companies that have genuine strategic interest. This is raising valuations for acquisition targets to exorbitant levels. For instance, Blackstone is paying Hilton $47.5 per share, which is a 29% premium on the latter’s closing price on July 2, 2007. One bad news can have the markets scurrying for cover, bringing this rather extended bull run to a grinding halt. And we may be finally left waiting for that emergency bailout number after all!
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative
For More IIPM Info, Visit Below....
The Sunday Indian - India's Greatest News weekly
IIPM, ADMISSIONS FOR NEW DELHI & GURGAON BRANCHES
IIPM, GURGAON
ARINDAM CHAUDHURI’S 4 REASONS WHY YOU SHOULD CHOOSE IIPM...
IIPM Economy Review
These are some more IIPM sites :-
http://iipm-management-courses.blogspot.com/
http://iipm-mba-bba-institute.blogspot.com/
http://iipm-mba-institute.blogspot.com/
http://iipm-top-institute.blogspot.com/
http://unparalleled-iipm-course-contents.blogspot.com/
http://indian-magazine.blogspot.com/
http://iipm-leadership-skills.blogspot.com/
http://dare-to-think-beyond.blogspot.com/
PE bull run could soon be over Accident? Call an ambulance. Robbery? Call the cops. Fire? Call the fire brigade. An under performing business? Caught you there, didn’t we? No, dear investors, there isn’t any emergency number for this malady, at least not yet! But as recent trends across the globe indicate, the panacea for hapless managers of such companies increasingly happens to be private equity (PE). And the deluge of money PE firms are pouring is sending a wave of frenzy, excitement and also fear across markets.Last month, a whopping $48.5 billion for Bell Canada (a 127 year old telecom operator in Canada) by a group of private equity firms led by Teacher’s Private Capital, set a new benchmark in the history of PE investments, a record that was previously held by the $45 billion acquisition of TXU Corp. by KKR & Texas Pacific Group. While KKR has made huge strides, it has often run into opposition from another PE giant Blackstone, which has a leg up, thanks to the acquisition of Equity Office Properties for $38.9 billion and an offer of $26 billion for Hilton Hotels. Gloated Michael Chae, Senior Managing Director, Blackstone, on the Hilton offer, “Blackstone’s real estate and corporate private equity funds collaborated on the acquisition of Hilton, demonstrating Blackstone’s unique ability to undertake such a transaction.”
Going against the tenets of conventional wisdom, these PE firms are in fact falling over each other in a race to decide who gets to cough up the billions for underperforming companies! Not for them are basic business jargon like corporate vision & strategic planning. Rather their philosophy is buy, strip & flip, a philosophy that wins them bouquets & brickbats alike. The basic fear is that they overburden the companies they acquire with debt and can bring company valuations to junk. This downside also gives companies that are under the PE umbrella an additional benefit – management that is overloaded by a substantial debt burden is more likely to be frugal in its handling of company operations.
As per the leading index provider Standard & Poor’s (S&P), there were only 16 pure private equity listed entities with a daily turnover of more than $1 million and a market capitalization greater than $250 million. As of 2007, these numbers have nearly doubled, S&P stated. The company has released a Global PE Index that includes 25 top PE firms across the globe that meet its specifications. S&P admits that the success of PE firms in terms of market valuations made it inevitable to have a separate index in order to track their performance.
While it may be boom time for dollar rich PE firms at the bourses, there are many who feel that this success story is not going to last very long. Firstly, the ever rising interest rates are making it tough for PE firms to be able to extract value, even with their rather ruthless methods. Secondly, in a mad rush to acquire companies, they are competing not just with each other, but also with companies that have genuine strategic interest. This is raising valuations for acquisition targets to exorbitant levels. For instance, Blackstone is paying Hilton $47.5 per share, which is a 29% premium on the latter’s closing price on July 2, 2007. One bad news can have the markets scurrying for cover, bringing this rather extended bull run to a grinding halt. And we may be finally left waiting for that emergency bailout number after all!
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative
For More IIPM Info, Visit Below....
The Sunday Indian - India's Greatest News weekly
IIPM, ADMISSIONS FOR NEW DELHI & GURGAON BRANCHES
IIPM, GURGAON
ARINDAM CHAUDHURI’S 4 REASONS WHY YOU SHOULD CHOOSE IIPM...
IIPM Economy Review
These are some more IIPM sites :-
http://iipm-management-courses.blogspot.com/
http://iipm-mba-bba-institute.blogspot.com/
http://iipm-mba-institute.blogspot.com/
http://iipm-top-institute.blogspot.com/
http://unparalleled-iipm-course-contents.blogspot.com/
http://indian-magazine.blogspot.com/
http://iipm-leadership-skills.blogspot.com/
http://dare-to-think-beyond.blogspot.com/
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