Clear Channel, America’s largest radio station operator and billboard owner, was bought out last week by two major private equity firms for $19 billion. That same day, it was announced that Reader’s Digest Association Inc. was being acquired by an investor group for $1.6 billion. These buyouts, becoming ever more common, are examples of a growing trend in big business: the power of private equity. Since the days of KKR – the company that took industry heavyweights like RJR Nabisco private in the late 1980s – there have seen significantly larger returns for investors in private equity firms than earned by public shareholders with similar holdings, and this difference has grown substantially in the past year. (“Private equity, private livesâ€). The impact on business is that companies taken private have a longer term objective to sell at a healthy profit, and less of a focus on quarterly performance.Â
Do you work for a private company, or a publicly traded one? How are decisions made at the company you currently work for – in the interest of the quarter or the long-term? Do you think private equity firms artificially drive up the price of companies? If you are not in business, do you feel a continued trend towards private holdings limits your ability to invest in the companies you believe in?
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Comments: 3
I think public companies do think too short term and have lost the employee confidence and loyalty of old. There is no trust anymore, and for good reason. I've never worked for a private company, and wonder if there is the same feelings by employees in them?
These two reason are about all the reason needed to go private now. Depressed valuations, is a tangible reasons for going private. And the recent new law the Sarbanes-Oxley Act of 2002 has raised the bar for corporate accountability and impose severe criminal penalties upon corporate officers for securities fraud violations, false CEO/CFO certifications, mail and wire fraud violations and retaliation against whistleblowers.
Time to take the thing private.
Bubbles burst. LBO's have been around a long time, and just boil and simmer, over and over again.
Richard- Valuation as a reason for going private is part of it, but cheap access to cash is what allows firms to be taken private. That along with industry specific trends that convince CEO's to sell, or Private Equity to buy.
SARBOX is a minor part of this puzzle, but the actual cost of compliance is starting to errode corporate profits (just listen in on a conference call).