Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.
Private Equity Expertise Is An Illusion.
No one will ever again believe a private equity guy when he says he has special skills in valuing corporate assets and managing companies.
KKR has seen to that with a series of gross miscalculations about the value of NXP since buying the company in 2006.
When it bought 80% of NXP in 2006, KKR paid €6.4 billion – then worth $8 billion – for the stake, putting a value of $10 billion on the whole of NXP.
At today’s IPO price of $14 a share, NXP is valued at $3.49 billion.
Since KKR bought NXP, NXP’s employees have been reduced from 37,000 to 29,000.
At the beginning of last week KKR valued NXP shares at $18-21 apiece. That came down to $14 in a matter of days.
Since KKR bought NXP its trading losses have stacked up to a cumulative $5.5 billion.
Shortly after buying NXP, KKR loaded up the company with $6 billion of debt, of which $4.2 billion is outstanding.
According to Bloomberg, NXP’s debt is 7X NXP’s estimated 2010 EBITDA earnings. Yet NXP has to compete against companies like TI which have no debt..
When KKR first filed for an NXP IPO back in April, KKR said it aimed to raise $1.15 billion from the NXP IPO. This expectation was scaled back to $714 million at the beginning of last week, and to $476 million by the end of the week.
So when private equity companies tell you they have special expertise in valuing corporate assets, and when they tell you they have better management expertise than industry-specific managers, there’s a one-word reply:
“Nuts.”Tags: better management, expectation, illusion, private equity companies, stake