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LBO Gang Eyes Silicon Valley. Hmm.

Posted by: Rob Hof on August 31, 2006

My colleagues Peter Burrows and Justin Hibbard have written a story on private-equity firms circling the Valley—an interesting analysis of why it may be time for some tech companies to reconsider whether being a public company is a good thing.

I don’t doubt some poorly performing companies might be good candidates. But I wonder about the motivations of some of those pushing these deals. Let’s see, the LBO guys and top management make money taking companies private. Then, when they go public again, as they not infrequently do—such as Seagate in recent years—they make more money. Other shareholders might benefit at both ends, if everything goes right, but they don’t seem to be the main beneficiary.

What’s more, if these companies do have some plan to go public again, then they still have to do all the same careful, legal attention to Sarbanes-Oxley etc., for several years prior to the IPO, right? So how much time, cost, and hassle do these newly private companies really save from supposedly avoiding public-company scrutiny? In the end, would the money pocketed by the finance guys and management have been better spent investing in the business, or at least paying dividends?

My inner skeptic may be running amok, because to be honest, I don’t know the answers to these questions. But I think it behooves the tech industry, at a time when some observers worry about a private-equity bubble, to ask them.

Update: Somebody else is now asking these questions, and more: Ben Stein, the New York Times columnist who thinks these buyouts should be illegal.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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