Monday, July 09, 2007

How to get in on the private equity IPO boom

We have had a number of emails asking the title question and the answer is fairly simple. Open an account and we will get you involved in he deals on a block basis. Through an account with us we are able to apply in large blocks for shares in IPO's which are then distributed across the accounts the ratios applied for. It really is as simple as that.

Not wishing to talk ourselves out of business here, but the question, perhaps, should be 'Do you really want to be involved in the first place?'. We are not making any judgement on any specific deal here, but investors should look at all the factors first.

1. Modus Operandi

For years we have seen big private equity firms buy public companies out and take them private, clean them up and then sell them on for profit. Seems like a simple plan akin to buying a house and doing it up, only bigger. However a number of these firms talk about the stock market like it does not reflect value and has harmed companies, we are then expected to believe that the floatation of the very same companies saying this is sensible?

2. Top of the market.

There is no doubt in my mind that some of the people running these firms are very clever and very smooth operators who have made vast amounts of money, billions in some cases, buy low and selling high. Now that they are effectively selling their companies to the market, have they decided that this is the perfect time to sell. I.e have we seen the top?

3. Motivation

Some of the founders of the businesses that we are seeing getting listed are going to make billions of dollars. They have done this buy being involved in their business and building them up over years. These are not the kind of businesses that you can just put in a CEO and hope that all will be well. They are not selling biscuits, cigarettes or Oreos here. These business are built around deal makers who can spot and opportunity, who thrive on the deal, more importantly these are the guys that give enough confidence to lenders to invest the huge sums of money that are required to do these deals. Will these guys still be there when there are shareholders meetings, SEC enquiries and all the daily drudgery of being a listed business?

4. Regulatory issue

We have already seen the private equity guys brought before senate committees and parliamentary hearings being questioned on their businesses. They have brought up tax issues, economic concerns, labour problems etc etc. As these business continue to do deals will we see a backlash like in the junk bond markets of the 1980's when investment bankers were put in prison and the industry effectively neutered?

5. Deal Flow

How many more multi billion dollar deals can be done? If you were a CEO of a company now, seeing your competitors being taken over and other CEO's being 'rationalised' wouldn't you be doing all you could to bring in outside consultants to look at your business and make suggestions on what a private equity firm would do if they took you over?

6. Structure

Remember also, that you would not be buying the deals that the firm are involved in, you would be buying the share of the management company and the profit flow from that. There is a difference.

The lists above is by no means exhaustive and we haven't put any of the positives, of which there are many, but it is important to think about whether or not you want to get involved rather than whether you can or not.

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