Published On: Thu, Dec 4th, 2014

How Icahn, Ackman Are Killing Leveraged Buyouts

Carl Icahn Screen shot - - 05 -10 -carl-icahn-crash-stock 320X Bill Ackman

It wasn’t long ago that a private equity companies like Blackstone and Carlyle would buy a public company that was troubled or close to bankruptcy, revamp it, and spin it off in a IPO. It is kind of like buying a run-down apartment, renovating it and selling it at a higher price. However, activist investors have been a thorn in the side of private equity, because they actually pressure “renovations” in the company while it remains public, as reported by CNBC.

This may seem like a more sensible and efficient way of doing things, except from the point of view of a company’s management, which could have some activist investor pirate jump onboard and suggest a mutiny, like throwing the CEO overboard. It has also been bad news for private equity as well, and now, with activist investors calling the shots, it is hard to find companies to buy. Instead of looking for floundering yet promising companies and taking them private, private equity firms are selling private companies to each other, and this is creating a bubble in privately-owned companies. One example is the purchase by KKR of Samson Energy for a fat valuation of $7 billion in 2011. The bonds have cratered to 50 cents on the dollar.

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