Not So Fast: The Backlash Against Private Equity

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 (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 (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.

Comments

[EverydayFinance]

I was disturbed to hear on CNBC this morning that there's a push to increase the tax rate on Private Equity firms. Any time a sector starts performing well (can you say windfall tax for energy, trying to regulate Pharma) and the government starts meddling in free market forces, I get frustrated. They pretty much destroy whatever they touch and free market principles/entrepreneu... are what made this country great and continue to drive innovation and job creation. Hopefully it's just talk. Don't even get me started on gas price regulation.

Dan at everydayfinance

[Tom B]

I'm not against private equity buyouts in moderation, but if it became a huge trend, the individual investor could see significantly reduced opportunities.

As for Mr. Pritch's comment: he needs to be reminded that oil companies do not create wealth; they merely pump it out of the ground--OUR ground-- public lands. The more we tax fuel, the better (within reason). Higher fuel costs encourage people to get off their tails and think about conserving and getting smarter vehicles and combining trips.