The growing merits of private equity – Part 1

Private Equity is getting a bad rap again with the recent demise of some fashion and book retailers, while reports quoted representatives blaming every aspect from online shopping to slack consumer demand.

Every excuse was cited other than these buyers paying too much for the asset or using too much debt or leverage.

I hope this doesn’t taint the image of private equity, as investing in this asset class is more common than many realise. There are thousands of owners of private equity around the world. They are found amongst those who own the equity in the businesses that operate in our communities and cities ranging from the corner store, landscape gardener to the family run chocolate factory.

There are obvious differences between private and public equity. Whether it’s the liquidity of its shares, transparency of the accounts and valuations or accountability of strategy and management; which is typically reflected in the price paid for the business or asset.

I like the fact that these owners (who are often majority shareholders) can ignore the quarterly and half-yearly news, analyst, investor and time cycle.

What a brilliant concept!! Actually being able to run and operate a business with a longer term view and not have to pamper to the whim and scrutiny of thousands of shareholders or broking firm analysts.

I think that there are too many companies (especially) on the Australian Stock Exchange that shouldn’t be publicly listed.

The motivations for a public listing can vary from providing an interim liquidity win for founding shareholders, seeking more and new equity capital or a result of lending conditions not allowing them to obtain normal bank financing.

I would like to think that the failed efforts of some private equity groups doesn’t ruin the landscape for  smaller businesses who require various sources of capital and financing.

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