For some reason I still see Warren Buffet's
2008 Shareholders Letter when someone mentions the term "Private Equity":
...Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a
bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change,
though, were the essential ingredients of their previous operations, including their cherished fee structures and
love of leverage.
Their new label became “private equity,” a name that turns the facts upside-down: A purchase of a
business by these firms almost invariably results in dramatic
reductions
in the equity portion of the acquiree’s
capital structure compared to that previously existing. A number of these acquirees, purchased only two to three
years ago, are now in mortal danger because of the debt piled on them by their private-equity buyers. Much of
the bank debt is selling below 70¢ on the dollar, and the public debt has taken a far greater beating. The private-
equity firms, it should be noted, are not rushing in to inject the equity their wards now desperately need. Instead,
they’re keeping their remaining funds
very
private...
From Forbes:
When private equity giant Blackstone sold luxury hotel group
Strategic Hotels & Resorts to Chinese insurance group Anbang for
around $6.5 billion earlier this year, many observers took the deal as further evidence of China’s mad scramble for foreign assets, especially US real estate.
But the deal was also the start of another scramble that investment
bankers across all sectors stateside have begun to notice: the return of
the quick flip.
In Strategic Hotels’ case, Blackstone took the company private in
December 2015 for about $6 billion, and then sold the group again in
March – meaning the firm cleared about $500 million in something close
to 12 weeks.
Private equity has long battled the caricature that they are mere
speculators. As the industry has matured there has been ever more talk
of more farsighted investment strategies. In February, for instance, The
Carlyle Group announced it had raised more than $3.6 billion for a special long-dated fund aimed at holding companies for at least double the length of the rest of its conventional funds.
But Mergermarket data show the current market environment is making it hard to resist the option of a speedy – and relatively juicy -- exit.
So far this year, 24 private equity firms have exited platforms after
holding them for less than two years. In 2015, there were 46 such
exits, a nearly 50% increase from 2014, when there were 33. Frequently,
the portfolio companies in question were traded to other sponsors....MORE
