FPM cite here two examples of using exit doors and what they actually augur. First is news of three giant private equity firms settling with US prosecutors before potential massive fallout from the PE collusion lawsuit.
“The agreements [settlements] still need court approval, but KKR, Blackstone and TPG were keen to reach settlements before September 4, when a
district court judge will make a preliminary ruling on whether the case merits
class-action status.” FT, August 7, 2014 4:47 pm
And the second example is a traditional exit strategy used by private
equity firms for constituent companies in their portfolios, i.e. carrying out an
initial public offering or IPO.
“Hedge funds are building up multimillion pound bets against
companies recently listed by private equity after a number of high-profile
flotations this year have fallen sharply in value, leaving institutional
investors nursing large losses.” FT, August 5, 2014 1:06 pm
Discussing the first example. The timely settlement of the collusion
lawsuit by three renowned buyout specialists is intended to precede possibly larger
settlements amounts as the prosecution case escalates. The next event date in this
issue is 4th September in one month. should indicate whether the cases against PE
firms conspiring to not compete on buyout deals which results in company
shareholders not realising maximum value from being taken private i.e.
delisted, is against the public interest. Therefore the class action suit with
lead plaintiff/s and any number of class action members could lead to bigger litigation
payouts. Remember the “Big
Tobacco Guilty as Charged” cases with numerous claimants and payouts.
And then there was one! All 7 of the defendants have settled their
cases to date, except The Carlyle Group. We wonder which of the politically
connected PE executives knows more about how the PE conspiracy lawsuit will
run? With the above mentioned three PE firms reportedly settling for collective
total of US$325 mn. And with recent settlement by the other three defendants Bain Capital, Silver Lake and Goldman
Sachs, for a combined US$150.5 mn, we are still nowhere near the
multi-billion dollar compensation sought by pension funds and individual
investors as plaintiffs.
The crux of this matter is which litigation side’s lawyers, defence or
prosecution, has outwitted the other and whether the US Justice Department’s step
forward serves the public interest or recoups from big corporate finance. While
the people’s campaign for “cleaning up finance” gains momentum, all too often
the wider public interest is understated by its representatives in state
legislation and administration i.e. justice and politicians respectively. See
FPM-followed SAC-saga in prosecuting Steven A. Cohen and his eponymous firm so
far reaching a global multi-billion dollar settlement. Watch this space September 4, 2014.
In the second example of ‘exit doors’ FPM sees a sinister trend towards hedge fund executives exploiting their bretheran PE firm’s mismanagement or asset stripping of their buyout companies. The added-value represented by the PE management’s involvement in the firms it takes private are suspiciously questioned at IPO. If this was the intended result then FPM recommends that PE and hedge fund activities need to be curtailed. As was when Chinese Walls were implemented at investment banks to prevent conflicts of interests between its trading operations and its advisory businesses. One cannot help but draw comparisons on how the mega-banks are proceeding to settle lawsuits for acting as double-agents in the subprime CDO collapse that bought the entire capital markets to its knees in 2007/08. High water marked by Lehman Brothers’ demise.
In the second example of ‘exit doors’ FPM sees a sinister trend towards hedge fund executives exploiting their bretheran PE firm’s mismanagement or asset stripping of their buyout companies. The added-value represented by the PE management’s involvement in the firms it takes private are suspiciously questioned at IPO. If this was the intended result then FPM recommends that PE and hedge fund activities need to be curtailed. As was when Chinese Walls were implemented at investment banks to prevent conflicts of interests between its trading operations and its advisory businesses. One cannot help but draw comparisons on how the mega-banks are proceeding to settle lawsuits for acting as double-agents in the subprime CDO collapse that bought the entire capital markets to its knees in 2007/08. High water marked by Lehman Brothers’ demise.
No comments:
Post a Comment
FPM welcomes sensible feedback on our blogs / website. Through our work FPM is evolving from an asset advisory model to an asset management proposition.