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EquityFC Blog
Showing entries posted in August 2007
Showing items 1 to 9 of 9
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Stat of the day | 31 August 2007
Well, if that rise sounds fanciful given the credit crunch and the general uneasiness in global deal activity this year, it is: the numbers relate to India. But as the piece says, rapid growth on the sub continent is the driver behind this activity. There has been a slowdown in investment for Indian companies' overseas M&A activity, apparently, but then in many cases that's just financial engineering.
I think this is a good sign for the mid-market, growth company investment scene here in the UK, and for smart finance execs looking to get into exciting, PE-backed businesses. Yes, the markets are wary of balance sheet plays from the big PE players. But true growth is always attractive to investors.
Hunger or greed? | 28 August 2007
Interesting article at the Independent on the seeming crisis of confidence in private equity. Or, if you prefer, just another brick in the media wall... But it was the headline that caught my eye, taken from this quote in the piece: Robert Talbut, chief investment officer of Royal London Asset Management, says: "We are not going to see a return to the degree of the risk hunger of three months ago any time in the foreseeable future. Access to credit will be more difficult and it will become more expensive in the future."
Hmmm. Although I'm a lot less well-informed that Mr Talbut, it strikes me that the problem has been less about a "hunger for risk" as a greed on the part of the banks. Yes, they were looking for what might be considered riskier options - but investing in the big LBOs (and with $300bn of debt committed to deals that have yet to complete, that's precisely what they're doing) can't have seemed that risky at all.
In fact, I would argue that the private equity industry's real strength is genuine risk: growing businesses and - if the credit crunch has legs and turns into a recession - turnarounds. It's a lack of hunger for this kind risk in Europe that is killing entrepreneurialism - so anything that dents a "risk investor's" passion for leveraged deals and ignites their enthusiasm in lending or buying innovative business might just end up being a good thing.
Thursday reading | 23 August 2007
Three interesting pieces for you today from a variety of sources. Think of this as EquityFC's contribution to clarifying the PE scene during a period when the press is in maximum hype overload.
First up, a couple of interesting articles from blog Candid Capital on how private equity managers are rewarded (part two is here). Unlike most of the press coverage of one of the more contentious issues in PE at the moment, Candid Capital is offering dispassionate and clear explanations, and if you're already in a PE-backed business or thinking about it, these articles are a great primer on how your investors' proxies are remunerated.
Second, a robust defence of the contribution PE makes to society. The BVCA - which is a little directionless at the moment, as even they would admit - hasn't done a great job of making the case for PE, and the TUC and others have been able to point vigorously at the bad apples to tarnish the whole concept. While this BusinessWeek piece is a little light on detail, and focuses a little too much on the LBO side of things, it offers a clear set of arguments for PE's benefits.
Finally, and to balance things out a bit, the ever-robust Richard Murphy makes his case for reforming the use of CGT in PE situations. Well, actually, he argues that tinkering with CGT is missing the point - although the government's plans to lengthen taper relief and up the 10% band do look like they'll help growth company investors and limit the mega-gains of the LBO guys. If the PE model is to have a long-term future, it needs to accept that its practitioners should not be special cases. Yes, when there's risk, there should be reward. But where there's income, there's also income tax, and avoiding it undermines the case for the benefits PE brings to the economy. Happy reading!
Never on a Sunday | 19 August 2007
Well, that'll teach me to work on a Sunday: I got all excited when Google News Alerts for "private equity" offered me this link: " I am looking for a Private equity firm to buy a cash register"
Nothing at all interesting at that link, sadly, but the headline made me laugh in these days of turmoil. The real item is here and is somewhat less mirthsome...
Tight times force the best from finance | 16 August 2007
OK, so the credit crunch is overdone (especially for the mid-market and proper growth companies), but market turmoil does have a few people running scared. Some PE portfolio companies are even being cut adrift. Worse yet, there's a slowdown in retail sales and the business cycle may be on the turn. Great news! Why?
Well, it ups the demand for good financial management within businesses. "Good" doesn't mean parsimonious or niggardly - actually, it doesn't just mean those things. For growth companies - or businesses where growth has been temporarily interrupted by cyclical events - it means being creative and combining tight controls on cash with solid investor relations and smarter investment evaluation. That's the meat and drink of the modern FC/FD role and when things look dicey - like they do now - it's a chance to really shine on the management team. For those of you with a strong track record of "creative financial probity", there may well be strong demand for your services.
Bubble? What bubble? | 13 August 2007
Lots of coverage at the moment about the "private equity bubble". At times like this, I always reach for mother's wisdom, and very early on she taught me that when the amateurs get into a market, the professionals were probably already out. On that basis, I should maintain any semblance of professionalism by quitting writing about PE - after all, if a blogger about franchises is holding forth on the subject, we're all doomed.
But... well, it is the subject of the day. So I found some common sense on the subject, from blogger Howard Lindzon:
"Basicaly, the Private Equity guys became trend followers, and not
contrarians. When you have that much money at your disposal, you should
never pay ‘UP’, you should be modelling and researching broken
companies and industries, waiting and thinking. Those of us with little
money should be doing what they were doing. All they did in this cycle
was make the trend more pronounced and end many great stock runs with
an exclamation point...to the upside (thank-you very much)."
Great line - and it reinforces what we've been saying here about the fundamental value of PE - and being a PE-backed manager - in the mid-market, VC sector and for turnarounds.
Final note: In my old mag, we profiled Clive Kahn when he was CFO at Travelex. The deal worked out great for him, his CEO Lloyd Dorfmann and their PE backers. Want proof PE is addictive? Kahn's at it again, this time with a £70m management buyout of Cardsave, the company that provides credit-card services to independent retailers. Travelex was a billion-quid deal - so this mid-market play shows that once you have the skills to succeed as a finance manager in PE, you can pick and choose your deals.
Big is still here | 9 August 2007
There might be a credit crunch, but the big firms are still attracting big money. "Blackstone Group LP raised $21.7 billion for the world's biggest private equity fund, just as a global credit crunch threatens leveraged buyouts. The fund is more than triple the $6.45 billion pool Blackstone raised five years ago, and tops the $20 billion amassed by Goldman Sachs Group Inc. in April. Blackstone has already committed to spend two thirds of the new fund, the New York-based firm said in a Business Wire statement today."
Small is beautiful | 9 August 2007
The panic around private equity and its access to cheap capital continues - just this morning, the press is reporting that Apax's bid for Emap is "on hold" as it struggles to raise the £2bn it'll need for the group. (For what it's worth, this seems an iffy play for a private equity firm, anyway. Radio advertising is in big trouble and the future of print media is also doubtful. So the traditional PE levers - growth, mortgaging assets and acquisitions - look in short supply at the mags-to-radio-to-events group.) But over at the Small Business Blog, they're reiterating the point we've made here many a time: by all means reform the tax structure for PE. But make sure true VC deals and modest, growth-oriented buy-outs aren't hit by the same rule changes. Most mid-market PE managers I've spoken to don't think the "credit crunch" will hit these deals - so the last thing we need to CGT reform that makes it less attractive to invest equity in growth companies and turnarounds.
Heads up: PE on the radio | 7 August 2007
You've probably heard the trailers already, but a quick reminder that the BBC is running a programme on Radio 4 tonight at 8pm on private equity. It's unlikely to offer much in the way of real insight for FCs and FDs - after all, you guys probably understand it a bit more than the average Radio 4 listener - but if you're interested in a PE position, it's worth keeping up with what the world's being told. And if you're already FC or FD in a PE-backed business, it's good to hear what colleagues and employees are being told about private equity - if only so you can manage their assumptions as it relates to your own business.
The online trail is at this page.