Private Equity Orgy

The Private Equity orgy rolls on. Today rumors hit the paper about Kohlberg, Kravis and Roberts participating in a buyout of TXU, a utility based in Texas for $32 billion. Everyday a private equity shop is in the news taking some giant company private in a deal that is sure to be profitable for, well…at least for the partners of the private equity firms. Shakespeare said in one of his plays “Perchance to dream, aye there’s the rub,” Well here’s the “rub” with private equity. No one knows how profitable these investments will be for the “investors” until years down the road when the companies that are taken “private” are taken “public.” If it is a smaller deal then the company can be sold to another private buyer, but these large deals can only be brought public in order to cash out. None less than Henry Kravis said

“Don’t congratulate me for buying a company, any fool can buy a company. Congratulate me when I sell that company.”


If you look at the numbers, the multiples paid by private equity shops are drifting up as liquidity washes into this corner of Wall Street. What will those multiples be when they cash out? No one knows.

Quote of the Day

“Fooled by the great number of investors that we weren’t selling to that showed up when it was time to close and who walked away.”

- Toll Brothers Earnings Conference Call (2/22/2007)