January 23rd, 2007
Will private equity funds gobble up tech and then the rest of corporate America?
This is a question that I think is one of the most important ones around, because of the massive amount of global capital and the stunning investment returns from taking public companies private. Is it a good trend?
Here are some issues:
- Will companies emerge leaner and meaner from private equity acquisitions? Or will they be weakened from higher debt loads? Their temporary owners know much about financial engineering but what about strategic positioning?
. . .
- Small investors are cut out of the lucrative deals pursued by private equity funds because only the very rich are allowed to invest. Yet many small investors will end up on the wrong end of those deals.
They face a likely scenario that their employer will be acquired by private equity funds and that their new owners will ask for salary and other restructuring concessions. It builds on stress points in society between the super rich and those that aren't.
. . .
- Will we witness the failure of Sarbanes-Oxley (SOX) regulations and the populist movement for greater corporate transparency?
The expense, and the management distraction of SOX compliance is a prime reason for taking public companies private. Plus, private companies suffer less from public scrutiny, a distinct competitive advantage.
. . .
- What is the future for NYSE, NASDAQ and other stock markets?
With the prospect of fewer public companies as private equity firms snap them up and take them private, the stock markets will have to do something. They will have to merge to maintain liquidity, which is exactly what they have been trying to do.
More on this subject later this week…
Tom Foremski reports on the business and culture of Silicon Valley at the intersection of technology and media. He also writes at Silicon Valley Watcher. See his full profile and disclosure of his industry affiliations.
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