Private equity, in my opinion, is the juiciest of all the financial sectors. While venture capital is more baldly a gamble -- after all, something like 10% of investments actually pay out handsomely -- private equity is a quieter, stuffier, much, much larger gamble. It makes my blood gurgle with excitement.
Private equity firms have been gambling big, of late, and, according to the Wall Street Journal [subscription required] at this wee hour of the morning, they might do even more so by orchestrating an LBO of Harrah's Entertainment, Inc. (NYSE:HET). Naturally, the biggie of all private equity gamblers, Texas Pacific Group, is rumored to be involved in the talks to buy out Harrah's, which has a $12.34 billion market value and $10.2 billion in debt. Now there's some leverage.
While this would certainly be the biggest casino company ever bought out by a private equity group, it wouldn't be the first casino company -- Colony Capital, also rumored to be in on discussions, has bought several properties in Atlantic City and Las Vegas -- or the first huge gamble. After all, there's HCA Inc. ($21.3 billion), in my mind (and I was analyst on many a hospital deal in my time in investment banking) a huge hospital management company like HCA is a huge gamble. In hospitals you have two very egocentric, impossible-to-predict, and money-hungry groups pulling your cash flow this way and that: doctors and the U.S. government. Ick.
Then there's the other recent biggie, pipeline company Kinder Morgan. Oddly, I also was an analyst on a Kinder Morgan deal long ago, but it doesn't take an insider to know that any company whose fortunes rise and fall on striking oil carries with it an element of risk.
And then there's the casino industry, sexy, capital intensive, and dependent on the whims of consumers who will spend their girlfriend's last dime on your product. And Harrah's is said to be firmly entrenched with the "middle-market tourist" -- a market segment that, as I see it, will always be trying to strike it big (enough, at least, to make it up to the rank of "up-market tourist"). When you look at it that way, maybe gambling on gambling isn't such a gamble after all.
[Photo Ami Shah]
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Reader Comments (Page 1 of 1)
10-04-2006 @ 7:14PM
Dan said...
"ut it doesn't take an insider to know that any company whose fortunes rise and fall on striking oil carries with it an element of risk."
??? Kinder Morgan isn't an oil company. The price of oil has nothing to do with the companies "fortunes". They simply transport oil - no matter what the price is.