How common investors can get in on Private Equity

For yet another year, Private Equity buyouts are expected to set a new record on Wall Street. Although the "rich get richer" theory applies, investors of all levels and experience have seen the benefits of leveraged buyouts. Rumors and announcements of LBOs stemming from Private Equity capital has driven stock prices dramatically higher, making these firms pay more for each acquisition or considered target. Although investors have little control over the situation and some may not want to lose ownership of the company they are part of, these Private Equity deals provide payouts of premiums that more then make up for these feelings.

Private Equity has remained an elitist group over time, with high barriers of entry. Until now. Presently, PE firms either trade sections of their firm publicly or have planned IPOs set to unveil before the end of this fiscal year. If you are looking for an immediate venture into ownership of a PE firm, you can try Fortress Investment Group (FIG), Apollo Group or KKR, the noteworthy firm that recently announced a bid for TXU. Investors with patience may want to wait for IPOs expected from the two most powerful and well-known firms in the PE world, Carlyle Group and Blackstone Group.

To some, it may seem confusing as to the reasoning behind Private Equity firms going public, especially because of their namesake. Thinking critically about how these firms derived their name, they still possess the ability to keep restructure and overhaul acquisitions in private. Disclosures in financial statements are a specific concern to some analysts, but the numbers will never fully display how the firms turnaround or fail with individual acqusitions. In addition, the acquisitions acquired by these financial barrons are likely to benefit because they are allowed to operate like a separate entity without the pressure of growing an artificial number such as a stock price.

Buyer beware though, as this article explains, PE firms stock growth after three years of their IPO is only 39% compared with normal growth of 45% for other companies. Also, as Adam Lashinsky writes, these PE firms are forced to cater to those pesky investors which they try to avoid so adamantly in the process of their business. Another possible red flag of the firms center around the use of stockholder's equity instead of debt. While the practice is generally seen as favorable and may be the case in some of these IPOs, the possibility of maxed-out debt could be extremely detrimental to the overall growth in earnings and health of the firm.