The Deal
Saturday, November 21, 
9:10 pm

Chrysler: What the locals are saying

  Share     E-Mail    Discussion    Print Story

Following the buyouts of household names like Albertson's, Toys "R" Us and others, private equity has slowly gained national attention. However, despite the notoriety from earlier deals, it seems Cerberus Capital Management LP's purchase of Chrysler hasn't dispelled some misconceptions of the private equity business. It doesn't help that only two weeks before heralding Cerberus' acquisition United Auto Workers president Ron Gettelfinger referred to private equity shops as "strip and flip" firms. Gettelfinger's comments were echoed in an editorial in Tuesday's Cincinnati Post:

The buyer is Cerberus Capital Management, a private equity company, meaning that it can operate pretty much without regard as to what Wall Street thinks.

Typically, private firms ruthlessly slash costs and operations of an acquired company so that the stripped-down entity can be sold at a profit, as a whole or in pieces.

Continue reading below

Also on Dealscape

For starters, PE firms can't operate with complete immunity from Wall Street because most of their investments issue debt, which often is rated by Moody's Investors Service and other agencies. In addition, the portfolio company may have to continue filing Securities and Exchange Commission documents in conjunction with debt offerings. However, PE firms do free companies from worrying about quarter-to-quarter earnings, allowing them to focus on the long run — a plus that the aforementioned Cincinnati Post editorial overlooked, but that was not lost on the editorial writers at the Detroit Free Press (nor the wife of PE Hub's Dan Primack).

The basis for the "strip and flip" perception stems from some recent examples of PE firms taking companies public about a year after purchasing them. Examples include more household names: car rental firm Hertz and mattress maker Sealy. However, while these IPOs are notable, they are actually rare when compared to the volume of buyouts.

Maybe Cerberus' involvement with an American icon will help dispel some of the myths surrounding big, bad buyout firms. —Matthew Wurtzel

See editorial from today's Cincinnati Post
See editorial from today's Detroit Free Press
See today's post from PEhub
See Chrysler Dealwatch





Post a comment





The Deal Pipeline

Deal Video


Inside The Deal: Avaya Inc.'s Mohamad Ali on the company's next target.


More video...

Crisis On Wall Street
Technology
Deals of The Decade

Community

Industry Insight

Managing your shareholder base

Growth companies and their PE sponsors should be wary of the pitfalls that arise when they layer on tiers of preferred stock.


Industry Insight

Easing the stress of distressed M&A

Corporate buyers face numerous complexities when trying to identify the right moment to purchase a distressed asset.


Editor's Note

Editor's letter: Nov. 16, 2009

Beneath the veneer of Wall Streeters beats the same heart, stirred by the same determinants of behavior.


footspacer.jpg footspacer.jpg footspacer.jpg footspacer.jpg footspacer.jpg


©Copyright 2009, The Deal, LLC. All rights reserved. Please send all technical questions, comments or concerns to the Webmaster.