KKR, Blackstone, Cerberus, Texas Pacific, Sevin Rosen, Bain Capital, and Thomas H. Lee Partners belong to an elite group that raised $432 billion in commitments last year.  They draw on the commitments to make huge investments, especially — and most controversially — to take public companies private.

What drives the going-private trend in the U.S.?  The Wall Street Journal likes to blame regulation of American financial markets and often points its editorial finger at Sarbanes-Oxley, which tightened oversight of public companies in the wake of the Enron, WorldCom, and Tyco disasters.  Does the hypothesis hold up?

Blawgletter has our doubts, which stem in no small part from our perception that private equity firms bear little risk once they forge a deal.  The transactions often guarantee PEs an immediate return of their capital investment, leaving them nothing but upside once their pacts close.  Management also usually gets a lavish payday.  And let’s not even think about the accountants, lawyers, consultants, and advisors who reap tens of millions in fees.

Blawgletter holds nothing against folks for making a buck, even big bucks.  But we wonder where all the bucks come from.  The WSJ might say that liberation from the heavy hand of Sarbox releases enormous value.  Too bad, it might add, that public shareholders can’t drink from the money geyser that erupts once their companies go private.

Too bad, indeed.  A skeptic might wonder why so much of the lucre goes immediately into the pockets of executives.  Doesn’t that compromise their loyalty to existing owners?  And shouldn’t they insist that most of the benefits of going private inure to the public shareholders?  Or would that take too much of the fun out of it?

Barry Barnett

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