Private equity and floatations

ghostbusters

http://business.timesonline.co.uk/tol/business/industry_sectors/media/article7144000.ece

spotted this today .. so Neilsen is planning to float to raise 1.75 billion and by my rough maths reduce their debt mountain down to $6 billion!!!!

As a small investor or large why would I want to buy into this???

Surely I would want to invest in a company with little or no debt at floatation?

Thrugelmir

ghostbusters wrote: »

http://business.timesonline.co.uk/tol/business/industry_sectors/media/article7144000.ece

spotted this today .. so Neilsen is planning to float to raise 1.75 billion and by my rough maths reduce their debt mountain down to $6 billion!!!!

As a small investor or large why would I want to buy into this???

Surely I would want to invest in a company with little or no debt at floatation?

When you invest in listed Companies do you read their Accounts before investing to see how much debt they are carrying?

ghostbusters

good point ...appreciate that assets and liabilities can be large but never considered really liabilities at point of floatation.
I was probably too quick of the block since I dont know what portion of liabilities the debt is plus what was the debt inccurred for or what the equity in the company is.

Generali

Most (all?) listed companies will be using sizeable amounts of debt to run their company. If a company can't earn a higher return than the cost of capital then you're likely to be better off putting your money in the bank than investing in it!

ghostbusters

Generali wrote: »

Most (all?) listed companies will be using sizeable amounts of debt to run their company. If a company can't earn a higher return than the cost of capital then you're likely to be better off putting your money in the bank than investing in it!

thanks

sounds like it best time I got myself a proper financial education on how companies works

Thrugelmir

ghostbusters wrote: »

thanks

sounds like it best time I got myself a proper financial education on how companies works

Start by reading published Company accounts. They carry enormous amounts of information that never get reported in the general press.

Recommend Investors Chronicle for a good source of information and views.

Generali

ghostbusters wrote: »

thanks

sounds like it best time I got myself a proper financial education on how companies works

If you want a simple guide to buying shares, "A Random Walk Down Wall Street" is a good start. "Confessions of a Stock Operator" is generally considered to be the classic guide to making money in The City (another US book, this time written almost 100 years ago).

The best way to see how a company works is to work on a market stall for a week or 2. That is Capitalism at its rawest. I plan to set my kids up running a market stall for a summer when they hit 18.

kennyboy66_2

ghostbusters wrote: »

http://business.timesonline.co.uk/tol/business/industry_sectors/media/article7144000.ece

spotted this today .. so Neilsen is planning to float to raise 1.75 billion and by my rough maths reduce their debt mountain down to $6 billion!!!!

As a small investor or large why would I want to buy into this???

Surely I would want to invest in a company with little or no debt at floatation?

The real question should be why would any private investor (or pension fund) buy into a flotation that has been in private equity (or often through several PE hands). The majority of efficiencies (balance sheet & operational) will have already been squeezed out.


I say this despite seeing some 'evidence' that private equity flotations perform better than their peers in the first year (the research was from CASS I think). I doubt if 1 years performance really tells us a great deal.

The balance sheet will be loaded with debt, which is rarely the best model in the long term.

Degenerate

kennyboy66 wrote: »

The majority of efficiencies (balance sheet & operational) will have already been squeezed out.

Those of us that have experienced this first hand prefer the term "raped".

princeofpounds

Debt is not a bad thing, and having no debt can be a bad move for a company.

Most stable companies should have debt because it is a cheaper source of finance than equity. Being a fixed claim it is a higher security on the assets of the company and demands a lower return from the company. Interest costs can also be deducted from earnings and so provide a shield from tax.

Essentially, it can allow shareholders to put in less equity to finance a company, permitting that extra equity to be used in financing other enterprises. A company can be worth *more* to shareholders with debt.

Google 'weighted average cost of capital' for more information.

This is not to say that the deal highlighted above has a reasonable amount of debt. Private equity in recent years has overdone it on the debt.