Private Equity Buyout = One Less Investment Idea
There is a growing trend of private equity funds buying out listed companies.
According to the Straits Times, the most recent prominent cases on the Singapore bourse include Nera Electronics, Landwind Medical and First Engineering.
It adds that more of such funds are heading into Asia because the “comparatively immature market” can still offer attractive returns.
While most investors are happy about the returns they get from these buyouts, one has to wonder what kind of effect this trend will have on the stock market.
First, it is the visibly performing companies which usually get earmarked for such takeovers, so that leaves either the untouchables (big caps who may be too expensive for some to invest in) or extremely small, below-the-radar, counters available.
Second, the universe of available investment ideas shrinks if more listed companies get taken private.
Investors will then have a harder time thinking of which stocks to park their money in, besides settling for a minimal interest rate from the bank.
Local shareholders may like to follow the example of their counterparts in Qantas Airways.
A key stakeholder in Qantas, institutional fund Balanced Equity, rejected a buyout deal last week worth A$11.1 bln from a consortium including Macquarie Bank and Texas Pacific Group, even though the proposal had been backed by the Australian government.
While Balanced Equity owns only 4% in the airline, Reuters said analysts now feared “other shareholders would also reject the bid”.
It added “there have been growing signs of shareholder resistance to private equity buyouts in Australia” and that travel retailer Flight Centre's shareholders threw out a A$1.6 bln offer last month.
Investors will lose one investment idea everytime a private equity fund buys out a listed company.
And if this goes on, fund managers will be struggling to look for value stocks to make up their portfolio.
In the same vein as how investment should be, shouldn't long term incentives take precedence over a short term, quick buck?
Serene Lim
ArchivesAccording to the Straits Times, the most recent prominent cases on the Singapore bourse include Nera Electronics, Landwind Medical and First Engineering.
It adds that more of such funds are heading into Asia because the “comparatively immature market” can still offer attractive returns.
While most investors are happy about the returns they get from these buyouts, one has to wonder what kind of effect this trend will have on the stock market.
First, it is the visibly performing companies which usually get earmarked for such takeovers, so that leaves either the untouchables (big caps who may be too expensive for some to invest in) or extremely small, below-the-radar, counters available.
Second, the universe of available investment ideas shrinks if more listed companies get taken private.
Investors will then have a harder time thinking of which stocks to park their money in, besides settling for a minimal interest rate from the bank.
Local shareholders may like to follow the example of their counterparts in Qantas Airways.
A key stakeholder in Qantas, institutional fund Balanced Equity, rejected a buyout deal last week worth A$11.1 bln from a consortium including Macquarie Bank and Texas Pacific Group, even though the proposal had been backed by the Australian government.
While Balanced Equity owns only 4% in the airline, Reuters said analysts now feared “other shareholders would also reject the bid”.
It added “there have been growing signs of shareholder resistance to private equity buyouts in Australia” and that travel retailer Flight Centre's shareholders threw out a A$1.6 bln offer last month.
Investors will lose one investment idea everytime a private equity fund buys out a listed company.
And if this goes on, fund managers will be struggling to look for value stocks to make up their portfolio.
In the same vein as how investment should be, shouldn't long term incentives take precedence over a short term, quick buck?
Serene Lim
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