Tuesday, August 01, 2006

I Hope They Ate Their Own Cooking
The genius private equity guys did quite a job on Burger King. The firms, Texas Pacific Group, Bain Capital and the private equity arm of Goldman Sachs, bought Burger King in 2002 and then paid themselves substantial fees, including a dividend of $367 million, which was paid with borrowed funds. The fees and dividend approximately totaled the amount the three firms invested to take Burger King private. Burger King went public in May at $17 a share, which valued the remaining stake of the three private equity firms at $1.8 billion. Today Burger King announced its first earnings report since it went public and the results were not good, but predictable. Earnings were hurt by a $30 million management termination fee that went to the three firms. The market lopped 13% off the stock price. The stock is off 22% since it went public. If the three firms still own their shares, their value is off $400 million since it went public. Private equity investors pay themselves huge fees and add questionable value. Investors should stay away when private equity firms take their companies public.

No comments: