Saturday, July 23, 2005
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Private equity groups go to Europe
Peter Gumbel has a fascinating story in Time on the growth of U.S. based private equity firms engaging in leveraged buyouts of European firms.
Read the whole thing. The restructurings are causing a bit of a ruckus. That fact that these groups are headquarted in the U.S. probably doesn't help matters right now. More importantly, European unions allege that the private equity groups come with mass layoffs. I have no doubt that's true in some cases, though the funny thing is that if you read the entire article, you will fail to find a single example of a U.S. firm actually recommending mass layoffs.posted by Dan on 07.23.05 at 12:56 AM
This has been a long time coming, but beware the hype in the US business press. BusinesWeek comes out with a story every other month on the coming wave of US-style restructurings that will (insert cliche) shake up / reform / turn around Old Europe. It's been hyped for over a decade and I've yet to see it happen (otherwise, Paul Achleitner of Allianz, who's been doing this long before Bonderman and the others discovered Germany, would be as rich as Kravis by now).
Also, a large part of this is simply liquidity-driven: there's been an astronomical increase in the amount of capital devoted to private equity during the past decade and a half. There simply aren't enough investment opportunities in the US market to absorb the gazillions, and the vast increase in investment funds, pouring into the market.
Which means two things: returns in the core US market for private equity investments will significantly underperform returns from past years, and the smartest private equity investors, like Kravis, David Bonderman et al, will probably reap above-average returns by being the first to figure out how to penetrate the opaque and convoluted ownership structure of so many continental European firms.
I think it's likely that this wave will crest fairly quickly as European family-owned businesses develop the equivalent of poison pills and as the number of easy targets/quick wins shrinks to zero over the next few years.
At which time KKR, TPG and the rest will probably turn their sights to India and Brazil.posted by: thibaud on 07.23.05 at 12:56 AM [permalink]
The simple use of this phrase:
They used to be the rare exception in continental Europe, where financial leverage has long been frowned on
suggests someone who doesn't know what he's talking about. European companies have always had much more debt in their capital structures than American ones.posted by: dsquared on 07.23.05 at 12:56 AM [permalink]
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