Buyout Fever
We were just at a panel on buyouts moderated by Maria Bartiromo, featuring Clayton, Dubilier & Rice CEO Don Gogel, SilverLake's Glenn Hutchins and JANA Partners founder Barry Rosenstein. We'd have live blogged it, but ... oh, who are we kidding? (This is part of our very occasional effort to bring you information that's actually useful.)
Some highlights:
· Panelists were universally negative on SarbOx, which wasn't surprising. Carlyle CEO was quoted as saying that Sarbanes and Oxley should now be forced to sit on the audit committee as punishment and that companies are going public outside of the US just to avoid it. "23 of the 25 top IPOs this year occurred outside of the U.S. ... People who have a choice don't come here."
· The boom in private equity is largely attributable to increased debt available to capital markets due to low interest rates. (Seeing multiples of 6 - 7x cash flow.)
· When asked if they were interested in doing business in Russia or India, Hutchins said Russia was "not a place where I would do business" and that its "actions with respect to Yukos have been criminal." He wasn't inclined to do business in India because it's a "discovered market" and multiples were "mind-boggling." He also thought there was a labor market arbitrage problem. Rosenstein passed on Russia as well because there's "no protection of shareholders or corporate governance at all."
· When asked if they would prefer to have Clinton or Bush in the White House right now, all prefered Clinton, largely due to deficit concerns.
Comments
6-7x cash flow? What kind of cash flow? EBITDA? FCF? OCF? Why the Carlyle CEO would badmouth SOX is beyond me -- it's his bread and butter, allowing him and his ilk to take private middle market firms for whom SOX is especially burdensome.
The PE boom is a chicken and egg thing with a helping of SOX fueld by low interest rates. I'm of the opinion that "hedge funds" looking for alpha wherever they could find it, entered the leveraged loan market, significantly increasing the demand for leveraged loan originationa, and making it cheaper and easier for PE firms to get financing for things like paying 15x EBITDA for left handed smoke shifter producers or 14x for a European car wash chain like Caryle just did (http://www.thecarlylegroup.com/eng/industry/l3-topnews-article3310.html). It creates a feedback loop and one day it will fall apart. That day will be March 6th, 2007.
I would never do business with Russians, and I stand by that.
I am amazed that people actually have deficit concerns. Maybe I'm missing something. I'd prefer Clinton for millions of unrelated reasons.
Posted by: Johnny Debacle | April 20, 2006 03:53 PM
Also I like that you guys went to this. Snark is best served with some edification.
Posted by: Johnny Debacle | April 20, 2006 03:56 PM
At least Muffy would have told us what Maria was wearing.
Posted by: eddy | April 21, 2006 10:51 AM
I work as an auditor and absolutely hate SarBox/404 work.. it is so time consuming and miserable and basically worthless. The PCAOB has a field day critiquing all the 404 work we do. But the good news... The firm I work for makes tons of extra money for SarBox fees- The partners are loving it, how about the rest of us? I hate Sarbanes and Oxley
Posted by: jono | April 21, 2006 04:16 PM