The Risk of Going Public’ in Private Equity

I’ve come to the conclusion that the first half of the term “private equity” is practically a misnomer. Not only are private equity firms covered extensively by the financial press, but increased competition for deals has given financial buyers a natural incentive to build and promote their brands. A big part of this trend has to do with the well-publicized activities of the world’s biggest buyout firms. As the Blackstones and Carlyle Groups of the world amass even larger funds and bid on sizeable public companies, the financial media really can’t ignore them, and at times they seem to be infatuated with private equity. Some would argue that guys like David Rubenstein, Steve Schwarzman, and David Bonderman are flirting with celebrity status. Marquee names boost the field Meanwhile, a growing number of bona fide celebrities have entered the PE realm. U2 lead singer Bono is a partner at Elevation Partners. Retired General Colin Powell is a limited partner at Kleiner Perkins Caufield & Byers, while his son Michael is a senior adviser at Providence Equity Partners. And don’t forget that Governor Arnold Schwarzenegger had substantial PE holdings before he took office. Last month the spotlight shone again on private equity when Carlyle Group said it wanted to hire a global head of lobbying. Given its presence in multiple sectors, its global ambitions, and multi-asset approach, the move makes perfect sense. Meanwhile, the firm has been talking with its fellow PE sponsors about establishing an industry association that would lobby Congress and, perhaps more important, help change perceptions of PE in countries like China, where acceptance is an uphill battle. The question, though, is whether this publicity for private equity is a good thing. On the positive side, more analysis of PE and more reporting on the success stories should help break down some of the wariness toward private equity, which likely stems in part from the buy-and-bust wave that took place a couple decades ago. Shattering those stereotypes can be crucial when approaching a family-owned businesses or companies that have been private for many years. The downside, though, is that publicity typically yields increased scrutiny. There’s no question that the financial media’s growing interest in private equity could easily evolve into intense criticism if some high-profile PE deals fall on hard times. With so many deals being completed, the chance of shareholder lawsuits, ugly restructurings, and even scandal rises. That, in turn, could hasten what many view as the worst-case scenario for private equity: government regulation. Ever since the SEC started looking at hedge funds, there’s been talk that private equity would be next. So far that hasn’t happened, but once a public pension fund suffers major losses and can blame it on the PE fund it invested in, the case for regulation will be stronger. I’m not suggesting that private equity firms should start hiding from the press or shun opportunities to promote themselves, but enhanced publicity comes with a price, and the industry would be well served to keep that in mind as the mainstream financial media’s keen interest in private equity continues. Ultimately, the level of publicity you’re comfortable with may come down to your aspirations. For the big firms, heavy promotion may prove crucial to their success around the world. But for the average mid-market firm with four partners and a $300 million fund, achieving celebrity status could be more trouble than it’s worth. Adam Reinebach Publisher (c) 2006 Mergers and Acquisitions Journal and SourceMedia, Inc. All Rights Reserved. http://www.majournal.com http://www.sourcemedia.com