Not So Fast: The Backlash Against Private Equity

Includes: BMET, LAUR
by: Eddy Elfenbein

Eddy Elfenbein submits: When most investors think of risk, they think of stocks going down. Today, I think a big risk investors face is selling out too early.

Last week, I wrote about an emerging backlash against private equity buyouts and, in particular, my opposition to the Biomet (Pending:BMET) deal. Basically, these PE guys are getting great deals and I’d like to see more shareholders say “not so fast.”

To quote George Bailey:

Can’t you understand what’s happening here? Don’t you see what’s happening? Potter isn’t selling. Potter’s buying. And why, because we’re panicky and he’s not! He’s picking up some bargains. Now we can get through this thing all right. We’ve got to stick together though; we’ve got to have faith in each other.

As usual, I’m totally ahead of the curve.

The Wall Street Journal noted this backlash in an article yesterday. Some private equity deals are being sweetened, or organized as “stub equity,” meaning shareholders get a stake on the private equity side.

I was happy to see shareholder win a victory when the private equity offer for Laureate Education (Pending:LAUR) had to be raised to $62 a share from $60.50 a share due to shareholder opposition. Would it surprise you to learn that the private equity group is being led by the company’s CEO?

This is a nice reminder that management works for shareholders, not vice versa.