Deal and No Deal

So last week the major stock markets across the world felt the impact of the sub prime mortgage debacle in the USA. Tremendous volatility was experienced in the Dow Index, S&P as well as the FTSE (which are the markets that I had an eye on) and they saw the gains made so far this year all wiped out.

Anyway as a result of this, there has been concern about leverage buy outs (LBO's) and access to cheap credit that has fueled the boom and rise in activity in the private equity sector. So far it seems that this change in credit markets has started to take its toll with doubts about the completion of the takeover of Alliance Boots by KKR beginning to emerge.

Cadbury Schweppes is also struggling to offload its American drinks division because of the volatility being experienced in the debt markets recently and no outright buyer has emerged.

But on the flip side, Terra Firma, a private equity firm, announced that it had sealed its £2.4bn takeover of EMI records after 90% of shareholder accepted the bid. The music industry is undergoing tremendous consolidation at the moment but I am not sure whether private equity was the best alternative for EMI. I would have preferred venture capital funding that would spawn innovation rather than concentrate on maximizing returns on existing music catalog's. EMI is home to artists such as The Beatles, Robbie Williams and Norah Jones.

I will soon be putting together my take on the private equity sector, its merits and short comings as a corrective measure within the industry. But generally I am in favor of the concept of private equity, the only issue is the overzealous nature with which people have delved into it.
My take is that there are some businesses and industries that should be subject to private equity (such as automotive, IT and logistics etc) but others are not highly suitable.