4/9/08 WSJ Headline: IPO for Apollo Managment
Yet another private equity firm plans to float an IPO (Initial Public Offering). If all goes as planned, investors will be able to buy shares of Apollo Management LP in the public markets. Other private equity firms want to go public as well, following in the footsteps of Blackstone Group LP and Fortress Investment Group LLC.
Commentary tends to focus on two aspects of private equity firms going public today: 1) shares of Blackstone and Fortress declined over 40% after their IPO's; 2) problems in the credit markets have put some plans on hold. While these practical considerations affect the decisions on when and whether a private equity firm should go public, there's another side to the issue that needs to be discussed.
Two points in particular stand out for me. One relates to the private equity business itself. The other involves ethical issues and it strikes me as troubling.
The business of private equity firms has benefited from the "cheap" money that's been available - until now. Will these firms be as successful when the cost of borrowing increases, as it has done and is expected to do. If they become less profitable, why invest in their shares?
The ethical questions revolve around around the nature of the business itself. Private equity firms buy companies and "take them private." The logic is that privately held companies can be run more efficiently. Once they shape the company up, they sell the company either to a larger corporation, or, alternately, they may take the company public.
You have to ask yourself why they would take something that's running smoothly in private hands and subject it to public ownership again. Strictly for personal gain? Referring to Apollo Management's IPO plans, the Wall Street Journal states that "the move should unlock billions of personal wealth for Apollo's three main owners." We all understand these guys are trying to cash in. Is there any benefit to society? Does this consider, and should it consider, the common good. A simple example of the common good would be the fact that people's livelihoods are at stake here. Is it acceptable for owners to enrich themselves without giving consideration to the employees of these firms?
Another ethical point is equally troubling. You have to wonder about the conflict of interest that exists when a private equity firm goes public. Whose interests is management serving in their decision-making? Are they serving their own interests as owners of the private companies, or are they serving the interests of their shareholders? I'd like to know how they reconcile this seemingly blatant conflict of interest.
Commentary tends to focus on two aspects of private equity firms going public today: 1) shares of Blackstone and Fortress declined over 40% after their IPO's; 2) problems in the credit markets have put some plans on hold. While these practical considerations affect the decisions on when and whether a private equity firm should go public, there's another side to the issue that needs to be discussed.
Two points in particular stand out for me. One relates to the private equity business itself. The other involves ethical issues and it strikes me as troubling.
The business of private equity firms has benefited from the "cheap" money that's been available - until now. Will these firms be as successful when the cost of borrowing increases, as it has done and is expected to do. If they become less profitable, why invest in their shares?
The ethical questions revolve around around the nature of the business itself. Private equity firms buy companies and "take them private." The logic is that privately held companies can be run more efficiently. Once they shape the company up, they sell the company either to a larger corporation, or, alternately, they may take the company public.
You have to ask yourself why they would take something that's running smoothly in private hands and subject it to public ownership again. Strictly for personal gain? Referring to Apollo Management's IPO plans, the Wall Street Journal states that "the move should unlock billions of personal wealth for Apollo's three main owners." We all understand these guys are trying to cash in. Is there any benefit to society? Does this consider, and should it consider, the common good. A simple example of the common good would be the fact that people's livelihoods are at stake here. Is it acceptable for owners to enrich themselves without giving consideration to the employees of these firms?
Another ethical point is equally troubling. You have to wonder about the conflict of interest that exists when a private equity firm goes public. Whose interests is management serving in their decision-making? Are they serving their own interests as owners of the private companies, or are they serving the interests of their shareholders? I'd like to know how they reconcile this seemingly blatant conflict of interest.
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