Companies taken private look to go public — should you invest?
Posted by: in Private Industry NewsFiled under: Private equity industry, Public or private?
One of the after effects of the current private equity boom is a record number of buyout shop-owned companies that may find their way back to the public markets.
The Wall Street Journal’s Dennis K. Berman wrote (subscription required) about this this day, saying that, “The mergers-and-acquisition markets have shut, as potential buyers wait for asset prices to decline. One can only hope that a mass of over-leveraged and overpriced assets will stay out of public-investor portfolios. But don’t bet on it. There is too much inventory to move.”
Given that a glut of private equity cash-out IPOs seems inevitable, I think that investors should exercise extreme caution with these companies. Private equity firms won’t be taking their holdings public out of an altruistic desire to share the wealth with you: they’ll be looking to cash out and book profits when they feel they have the ability to get a compelling valuation.
In some ways, I think it’s analogous to the IPO of Blackstone Group (NYSE: BX), which amounted to a perfectly-timed effort by CEO Stephen Schwarzman to cash in his chips — at the expense of anyone who bought in to the IPO.
Investors looking for bargains should bear in mind that private equity firms look to acquire assets at a bargain and sell them at a premium. If you’re buying assets from a private equity firm, you should expect that you’ll have to pay that premium.
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