Secondary Sale Nonsense

Anthony Hughes of The Financial Review is a frequent commentator on Australian private equity.  Unfortunately Anthony doesn't seem to grasp the difference between gossip and journalism, so he often gets his details wrong.

Today he cranked out a small piece entitled "Neilson takes aim at private equity."  Hughes cut and pasted a paragraph from Platinum Capital's quarterly report warning about the dangers of an overheated private equity market.  It's a reasonably well thought out report, though Platinum conveniently overlooks the fact that trade sales, rather than share market listings or secondaries, have always been the primary exit mechanism for private equity investors.

But how on earth did Anthony come to this brilliant conclusion?

"The most common deals are those between private equity firms.  The sales generate fees for managers, junk bond salesmen and investment bankers." 

Hmmm . . .  now wait a second.  Let's list all the secondary sales completed in Australia last year:  Taverner, Bluestone, Loscam, Australian Pacific Paper, umm, umm, maybe a couple of others.  Most common deals?  I'd be surprised if secondaries represented 10% of total 2005 private equity transactions. 

What really annoys me is the implication that a secondary sale is somehow dodgy, a valueless flipping of assets intended to generate fat fees for all involved.  This is just plain wrong, ignorant.

Classic example:  a mid-market private equity firm buys a company with turnover of $50 million.  During the years that follow, the company achieves strong organic growth and also acquires four smaller competitors.  At this point the private equity firm sells the company-- now with turnover of $150 million-- to a large buyout fund who plans to expand it into Asia. 

We call this building a global business, Anthony.

Comments

[Anthony Hughes]

hadn't seen you site until today, but it looks good.

noted the comments about secondary sales, it's no big deal but just thought i should say that i didn't write that piece you refer to - was on other duties that day.

Anthony

[GP]

Fair enough Anthony, thanks for not taking offense.

Can't believe you let the AFR leave your name on the masthead when you're not writing . . . now that's living dangerously.

Regards, GP.