Sunday, June 24, 2007

Private equity is spreading wings

Private equity companies are causing quite a stir in the United Kingdom and the United States.

Big money shares are hitting the stock markets.

Shares of Blackstone Group, private equity that is the second-largest buyout fund in the United States, soared Friday in its trading debut in the biggest U.S. initial public offering in five years.

The stock jumped 16 per cent on the New York Stock Exchange to $35.91 (U.S.), after being priced yesterday at $31 a share. More than 97 million shares changed hands, with the stock rising as high as 45 per cent earlier in the day.

New York-based Blackstone is making the $4.13-billion initial public offering amid unexpectedly heavy demand from overseas investors. Demand for the 133 million shares ran at seven times the number available, analysts said yesterday.

"We like it short term, certainly," Peter Hodson, senior portfolio manager at Sprott Asset Management told Business News Network Friday. "They've got the direct access to privatizations in China ... and the connections are everything in that country."

Trade unions protecting labour rights have been at odds with the private equity companies who have been criticised for running in, axing jobs, creaming off the profit and then leaving.

The private equity companies get the very best tax breaks that they can and are always seen to put profit before people. This is what happens in the real world of private equity.

Private equity is in the business not to make products or service people, but they are out there only to make money.

Regulators are taking notice of deep public disquiet about the impact they have on the stock market.

Success and greater media attention are generating a rising tide of criticism, skepticism, and plain old sour grapes. These include both overpaying (and underpaying) in taking companies private, over-leveraging target companies, pulling out capital from investments too early, and doing nothing more than what can be replicated by public company managers.

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