[lbo-talk] Moody's: The Private Equity emperor has no clothes

joanna 123hop at comcast.net
Mon Jul 9 19:04:40 PDT 2007


Well, Capitalists don't like being looted either. Barron's wrote a few weeks ago that the only reason PE was going public again was because it was starting to lose money and the only way it could squeeze another few bucks out of the game was by figuring out another way to spin the wheel.

So, you know. Caveat Emptor! (Buyer Beware)

Joanna

Michael Pollak wrote:


>[Doug put this much more tartly in this week's issue of The Nation
>http://www.thenation.com/doc/20070716/henwood -- But I was thinking
>perhaps the appearance of this report today from Moody's was another sign
>reinforcing his suggestion that PE has reached its top.]
>
>July 8 2007
>Financial Times
>
>Moody's slams private equity
>By Francesco Guerrera and James Politi in New York
>
>Moody's, the credit rating agency, will on Monday launch an attack on the
>booming private equity industry...
>
><snip>
>
>In its report, to be issued on Monday, Moody's takes issue with the
>argument that private ownership frees companies from the short-term
>pressures of the equity markets, enabling them to invest and plan for the
>long term.
>
>The claim, often repeated by buy-out executives, is central to the
>industry's efforts to prove its activities benefit portfolio companies and
>the economy as a whole.
>
>Moody's report says: "The current environment does not suggest that
>private equity firms are investing over a longer-term horizon than do
>public companies despite not being driven by the pressure to publicly
>report quarterly earnings."
>
>The agency says buy-out funds' tendency to increase a portfolio group's
>indebtedness to pay themselves large dividends runs counter to their claim
>of being long-term investors. The report cites as examples of this trend
>the dividend received by Thomas H. Lee, Bain Capital and Providence Equity
>following their takeover of Warner Music in 2004 and the one paid to
>Blackstone after the purchase of Celanese.
>
>The document also takes aim at private equity's claim that improvements in
>companies' performance are driven by more focused management teams rather
>than financial engineering and higher debt levels.
>
><end excerpt>
>
>Michael
>
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