mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

Private Equity On The War Path Again

Those private equity so-and-sos are back again. Luke Collins kindly points out an article in the New York Times which says the PE companies have amassed $500 billion with which they wish to wreak their particular brand of misery on unfortunate companies.

 

The PE people are companies like Kohlberg Kravis and Roberts (KKR) and Blackstone which bought up NXP and Freescale in 2006 and since then have loaded them up with massive debt, sacked thousands of people, downsized the businesses hugely and still cannot manage them for profit and growth.

 

There was a time when the PE people used to claim that they had superior management expertise that allowed them to run companies more efficiently than other people.

 

That time has long gone. The wreckage which KKR and Blackstone have engineered at two once-great semiconductor companies shows the PE people haven’t got a clue.

 

The problem is, says the New York Times, that these PE companies have to invest their cash quickly – or give it back to their investors.

 

As the PE people don’t want to give it back, so they’re investing like crazy and consequently bidding up asset values.

 

This is the scenario which scuppered poor NXP and Blackstone. NXP was valued by KKR at $11 billion and Freescale was valued by Blackstone at $17.6 billion.

 

The problem of these high valuations is that they then meant huge levels of debt were loaded onto the companies – $6 billion at NXP and $10 billion at Freescale which make it very difficult for those companies to make profits and invest for growth.

 

Buying companies at inflated prices not only hurts the acquired companies but reduces the profits obtainable for investors – so everyone suffers except the PE companies which extract large fees for their involvement.

 

The EU is bringing legislation to make sure the PE people can’t cause too much damage to European companies.

 

These laws can’t be passed quickly enough.

Tags: blackstone, kohlberg kravis and roberts, new york times, semiconductor companies, wreckage

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6 Comments

  1. David Manners
    June 30, 2010 14:31

    Excellent point, Steve J, the taxpayer-provided bail-out funds are going to corporate rapists whose victims will be the taxpayers! You couldn’t make it up.

  2. Steve J
    June 30, 2010 13:32

    The balls have to go, especially given the charge – Corporate Rape.
    I’m sure I won’t be the first to have noticed this… but hundreds of billions of dollars ‘disappear’ worldwide from banks and their lousy investments. Where did the money go? Now a few months later the PE’s suddenly have more money than ever, hundreds of billions in fact… Coincidence, surely?

  3. Mike Bryant
    June 30, 2010 09:07

    I see Carl Icann is preying on Mentor Graphics. Hopefully Wally will put something in place to stop this good company being turned into something rotten.
    BTW – why is Wally in you list of keywords but not Aart ?

  4. David Manners
    June 29, 2010 19:38

    That’s the way to save the world, Malcolm

  5. June 29, 2010 11:50

    “Right hand and the testicles below” must surely be the answer? I have developed a real affinity for Henry 1 after reading your earlier blog! Maybe we could use their $500 billion to launch and network worldwide a global “Bankers have Testicles” contest for the audience to vote and decide who’s bits go first???

  6. Lefty Goldblatt
    June 28, 2010 10:58

    But . But .. But….
    does PE not find latent efficiencies ?
    embolden synergistic boundaries…
    cure acne ?