Monday, February 6, 2012

CFO's Smell PEU

Private equity has much to explain, according to CFO magazine.  One private equity underwriter (PEU) offered:

“In the ‘80s the value add was leverage; now the value add is really value add.”

Try up until 2008 the value add was leverage.  PEU's still charge management fees and pay themselves special dividends/distributions, some debt financed.  Opaque private equity calls "debt for dividends" = "liquidity recapitalizations."

The value add includes dramatically higher interest payments, which aids tax avoidance.  PEU's buy deeply discounted debt of affiliates, making them double sponsors.

It's significant when CFO's say private equity has explaining to do.  PEU's count on the "C Suite" to send potential affiliates their way.  Their puffery pitch is:

"Make some money now, but your profitgasm is but a few years away.  Join the G-men."

G is for Greedy.  It's amazing how many become PEU's.