Desiderata

Happy Thanksgiving! We have much to be thankful for in America. Despite the hard times for many, this is a great country and a great place to run a business!

KKR Buyout of Del Monte – It’s often said that venture capital funds and hedge funds are helpful, and even essential, to the economy since they provide liquidity needed to make markets and for people to grow businesses. That’s true in many cases. Of course, it’s also not true in many cases. KKR is leading a buyout of Del Monte; they’re taking it private (buying all the stock so it is no longer publicly traded, and thus a private company). Del Monte is doing fine. In fact, it’s a solid company that’s in no financial trouble. The private equity firms are going to buy the shares, gut the company and then take it public again in around five years. Nothing especially productive will come of this, and lots of people will lose their jobs. What will happen, however, is that the ultra-rich investors will make more money and their lawyers and advisers will stay busy.

The point: private equity firms and hedge funds often engage in financial transactions which add little or no value to the underlying business, but make the funds lots of money. Don’t believe it when people say they are essential to our economy. They’re not.

Advantage Sales and Marketing – Here’s more evidence of the above point. A company called Advantage Sales and Marketing is going to be bought by a private equity group for about $1.8 billion. The company was is being bought from another private equity group which bought it for $1.05 billion all the way back in 2006. This is an example of a “secondary buyout” where one private equity firm buys a company from another. This lets the seller lock in profits and lets the buyer do something with its money. No underlying value being added AT ALL.

Ongoing Insider Trading Story – We saw the first of what will undoubtedly be many stories with the angle that people think the stock market is rigged in favor of the big guys and against the individual investor. Hmmmm, you think so? The only reason I can think of to publish a story like that is to raise the idea that there may still be people who DON’T think the market is rigged. If there are, find them and sell them something; they’re suckers.