Why Private Equity is a Good Thing
 
Has anyone out there even considered buying a digital music player from Oregon Scientific?  Does this company have any reason to be involved in the digital music market?
 
I tired of seeing companies waste their energies in areas where they can’t even dream of competing.  What was their President thinking (“Watch out, Microsoft and Apple, move over Toshiba and Creative, here comes Oregon Scientific!!! W00t!!!”).  Fucking dumbass product strategy.  But you know what, people are actually buying them.  And those are the real idiots, much to Oregon Scientific’s relief.
 
By the way, I actually think OS is a great company.... they have some cool gadgets (like the weather sensors and stuff) and I think that they produce quality product.  So please, OS, don’t think I’m bashing you in every area, I’m just making you a poster child in the iPod space.  Now go kill Brookstone, please.
 
So what does this have to do with private equity?  For those who don’t know, private equity is a euphemism for the 80’s LBO (leveraged buy-out) term.  It means that a private group of investors (perhaps coordinated by an investment bank) buys a public company and takes it private.  Yes, you heard correctly:  The very same investment banks that encourage companies to go public are the same ones that coordinate efforts to revert those companies to private status.  Mixed message?  You decide.
 
Actually there is a good reason for privatization of public companies:  Bad management.  Public companies are ostensibly monitored by their boards, which are “elected” by shareholders. This is bullshit.  I mean, we all get those proxy voting slips in the mail but I don’t know of any public company that lets me yay or nay their product roadmap.  Or their managerial salaries.
 
So when a company is being run in piss-poor fashion, it’s time for the smart people who care about making money to move in.  Those are the private equity guys.  They will look at every piece of a company and make swift cuts where needed.  I like these guys because they are what capitalism is all about:  Greed.
 
 
 
 
 
 
 
 
 
 
 
 
[Yes, that’s our friend from 1987-era Wall Street, the elephant himself, Gordon Gecko.  Go get ‘em, Bud Fox.  Money never sleeps.]
 
When I say that capitalism is about greed, I am merely echoing Gordon’s thoughts on the matter.  Greed is what makes companies more efficient.  Um.... no, not the Dennis Koslowski type of greed, I’m talking about shareholder and stakeholder greed.  I guarantee that Tyco shareholders would not have wanted Dennis to run the company knowing what they now know.
 
Capitalism, dare I say it, has gone wrong in the area of public companies.  Much like our government, the shareholders (voters) are deluded into thinking that they actually control something or have influence.  This is absolute crap.  Show me an election won by 1 vote and I will start being interested in the democratic process again.  And people, please, don’t argue the tired point of “but what if everyone thought that way?”.  If you want to influence government policy, run for office or buy a slot on TV.  That’s the only way to do it, end of rant.
 
So how do we fix our capitalistic system of public corporations?  Simple:  The stock market.  I guarantee that when a company’s stock plummets, there will be changes to their strategy.  But, there’s one interesting thing here:  Who are the biggest investors in corporations?  Institutional funds (mutual funds, insurance companies, pension plans, etc).  And these guys rarely make good decisions when it comes to investing.  Note that I left out hedge funds.  This is because they actually care about making money, so they are the good guys.
 
So the trick is this:  We have to take money away from the idiots who are investing for us (mutual funds, etc) and we have to start making our own decisions.  You know what, the big institutional players (including hedge funds) will keep markets efficient, so don’t worry about buying a stock that’s suddenly going to drop by 50%.  We need to all start making our own decisions and investing based on what we all know -- and I truly believe that individuals are all pretty smart when faced with decisions about things that they understand well.  Why in the hell, for example, would a wheat farmer give his money to a guy that’s investing in bonds?  Um, you’re a wheat farmer.  Who better than you in invest in commodity futures (yes, the ones involving wheat!)?
 
I don’t know if Oregon Scientific is a public company, but suppose for a moment that they are.  If they polled all of their shareholders and asked them if they should be competing in the digital music space, what would they say?  I think that we all know the answer to that.  And this goes for many companies out there:  Quit wasting my money and start making products where you can actually compete.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(When was the last time anyone actually bought a camera from Kodak?)
My Blog
Friday, November 24, 2006