Guy Hands to be ejected from the Magic Circle

Guy Hands, the boss of Terra Firma, the high profile private equity firm that counts EMI amongst its' stable of portfolio companies has just done the daftest thing.

No, I'm not referring to his outburst of describing bankers as "whimpering dogs", on the basis bankers were refusing to bankroll mega buy-outs for years, given that most bankers have heard themselves described in worse terms (of course, they may extract revenge from future deal pricing).

What I'm referring to is breaking the code of magical mystery that surrounds how private equity works, in the same way as a magician might reveal how a magic trick is done.

In his speech at the Super Investor Conference in Paris (is that "super", as in "I think they are super"?), he laid out in plain english what private equity does, namely

- buy stuff with cheap debt and arbitrage the difference with the equity markets
- buy stuff at one multiple and wait for the multiples to go up
- buy stuff and see earnings go up

Doesn't he realise that for the layman to understand such matters, or more importantly investors financing private equity funds, that they might challenge the high remuneration paid to prviate equity firms.

Evidently, Guy's fury at not being able to raise tons of cheap debt from the banks, to allow the gravy train to keep flowing, sent him over the edge. Moreover, as he went onto lament, the first two options are now gone and the third is in peril from the real economy going into recession.

There must have been a stary glint in his eye as he described the conditions before the credit crunch as a "bygone era" and private equity firms having entered a "challenging phase".

He did offer some good news though - new opportunities would come from distressed investors with over-leveraged buy-out facing debt repayments in a year or so!


posted by John Wilson @ 8:46 AM Permanent Link newsvine reddit


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