One of the pleasures of covering an asset class in depth comes from watching it evolve over time. Mostly this is an incremental process of small changes in the industry's DNA to aid its survival. Typically these shifts are in isolation barely perceptible. But every now and again, they come in a flurry – usually in response to wholesale changes in the economy.
This is one of those moments. And observers of the private equity phenomenon are witnessing the moment when the industry pulls up its knuckles from the floor and private equity's
Two exogenous shocks to the system, the global debt drought and ramped-up public scrutiny, have changed the private equity landscape fundamentally. And this month commentators are telling the industry it's time to adapt or die.
Often that means buyers who bring their own debt to the negotiating table, instead of turning to outside lenders.
Such a tactic helps buyers lock in financing terms that are more certain than if they were to go to banks, says Glenn Youngkin, a Carlyle managing director. Banks that agree to help finance a deal but that haven't already sold the debt can only offer a range of rates for a deal. They can't be sure what the final terms will be until the debt is actually syndicated to investors.
Kohlberg Kravis Roberts presumably saw this trend coming when it set up its equity underwriting unit last year. Increased public and regulatory scrutiny is also prompting a number of interesting mutations in the buyout gene pool. The anti-private equity argument is undiminished by the collapse in mega-buyouts. The headlines may have subsided but as
“The full repercussions of the financial crisis triggered by bad mortgage debts in the United States are still unclear, but what we do know is that its unforeseen effects already include an unstoppable demand for greater transparency in our financial markets, and better regulation,” he writes. Private equity is the bogey man and Rasmussen is not pulling his punches. “Private equity funds are a menace to healthy companies, to workers' rights and to the European Union's Lisbon Agenda, aimed at making Europe the world's most competitive economy.”
Over at blog
Meanwhile in the UK, trade association the BVCA has gone on what
The report showed that tax contributions totalled £35 billion last year. The trade body said: “That's enough to pay for every nurse and police officer in the country.”
In evolutionary terms, this is the equivalent of standing tall, confident and proud.