paulr

EMI is a music company with experienced people who know about running a music company. They have just been bought out by a private equity firm who probably have little experience in running a music company. What makes them think they can do a better job. Its not like VW buying out Skoda where they can share technology,experience and parts therefore use that to run Skoda better and also benefit from economies of scale.
I'm no economist but what are private equity firms all about. In my mind there's no logic?

Longjing

EMI executives don't need to know how to make records, they need to know how to run a large company... how to make the assets work harder, cut finance costs, improve supply chains... all the things normal CEOs do.

PE firms have been doing this for years and years. It's not really any different from the massive conglomerates that used to be popular, except that PE firms are required to generate higher returns and have more flexibility in the way they run a firm, because they take them private.

It's just a very pure form of capitalism. Their investors benefit - pension funds and insurers, largely. They also make shedloads themselves, and agreed a beneficial tax regime with the Revenue back in 1987, so a lot of their income is not taxed in the usual way. That's galling, but it was the Revenue that gave it to them.

The track record of private equity firms in "doing a better job" in pure capitalist terms speaks for itself - they make more money for shareholders, and that's why people pay them.

jasey

Buy Company

Sort it out (sack half workforce, invest in technology etc - all the usual)

Sell Company for Double the purchase price.

Repeat

Trout

iTrader: (1)

They are so experienced that they are bleeding talent like there is no tomorrow and they have lost £260m in the past year. Obviously skilful in running the company!

paulr

But you can hire people to do those things. Shouldn't the head of a company be someone with vision,creativity and a knowlegde of the market they are in.

Longjing

PE executives usually have some knowledge of the sector they target. Plus they usually hire an industry figure to be the new CEO or chairman - they don't run it day-to-day, they are more like owners with a board seat.

Talent and creativity, yes. That's part of the story. PE pay is not in the public domain, so people can get paid without the public outcry that happens when public company managers' pay is disclosed.

Increasingly, hedge funds are getting the best talent for those kinds of reasons - more flexibility in setting compensation.