There’s been some coverage recently of the banking unions calls for the Irish banks not to “fall into the hands” of private equity investors. Obviously, with headlines like “Unions fears 3500 job losses” you can see why they might be worried.
While private equity funds have a “slash and burn” reputation – coming in and reducing costs anywhere possible while at the same time extracting as much money as they can for themselves – its unlikely that the strength of the unions within Irish banking would allow that to happen – in the short term anyway. It hasn’t happened in Eircom – from a job losses as a money saving tactic perspective at least.
There’s the good and the bad of private equity deals – but I don’t know enough to comment fully. The KKR takeover of RJR Nabisco in 1988, one of the most famous, is the subject of “Barbarians at the Gate” which is worth a read. A positive example of a private equity deal was the £25m takeover of London City Airport by Dermot Desmond in 1995 and its subsequent sale for £1.65bn in 2006.
How and ever, the perception is mostly negative though. Thanks to Michael Wade at Execupundit.com, check out this Business Week article “How Private Equity Strangled Mervyns“. Some key quotes from the article:
Cerberus, Sun Capital, and Lubert-Adler stripped the 59-year-old retailer of its assets and threw 30,000 people out of work .
Its 149 remaining stores are being liquidated. More than 18,000 people have been thrown out of work—without severance and, in many cases, weeks of vacation pay—amid the toughest job market in a generation.
Then they stripped it of real estate assets, nearly doubled its rent, and saddled it with $800 million in debt while sucking out more than $400 million in cash for themselves, according to the company. The moves left Mervyns so weak it couldn’t survive.
You can see why people might be worried. It will be interesting to see what sort of deals the Minister for Finance, Brian Lenihan can come up with. Will competition concerns be thrown out the window in order to save the banks and keep them from the hands of the private equity companies?
And will the same competition considerations be heaved out the same window to allow Ryanair take over Aer Lingus? But more about that later.