Thursday, June 14, 2007

Dinosaurs are alive, on Wall Street - MarketWatch

After the 1980s everyone thought conglomerates (like dinosaurs) were dead. But as David Weidner points out, today's private equity firms are essentially conglomerates.

Dinosaurs are alive, on Wall Street - MarketWatch:
"Private equity companies are ...buying into every industry, including those where they have little or no experience in managing. TA Associates began a technology focused firm, has investments in financial services, healthcare and consumer companies like Americhoice and Eastern Mountain Sports. 'Blackstone Group which will offer a stake to the public next week, owns or has investments in more than 100 companies, including such diverse businesses as Cadbury Schweppes, Celanese, Deutsche Telekom, Extended Stay America, Freedom Communications, Freescale Semiconductor and Universal Orlando."
So what has changed? One thing is management. Rather than have a single person in charge across multiple industries, the private equity firms are overseeing the firms much like a super-active investor (which is what they are trying to be). This also reduces the importance of transparency (a reason often cited as a cause of the diversification discount). Another difference is that many of these investments are seemingly more temporary in nature: fix things up and then sell them in an IPO.

But in spite of their differences, there are enough similarities to make the claim that todays private equity firms are the evolution of yesterday's conglomerate (which is exactly what Weidner does).

BTW We talked about this in class this spring, but it was not as nearly as interesting as this piece that talks about the return of the dinosaurs!

Thanks Mark!

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