Riffing on a recent essay by DealBook’s Andrew Ross Sorkin, Going Private lands a sharp upper-cut to the theory that leveraging up a company in connection with an IPO (usually to pay a dividend to the pre-IPO owners) somehow cheats those buying into the offering.
... many critics of LIPO suction [Leveraged IPOs paying out private equity] complain that companies are badly weakened before they IPO. These critics strike me as even more insulting to the investing public than Going Private's occasional barbs, or the even curmudgeon "Dr. Mark Klein" (who appears ready to label Jim Cramer fans as evil drugged-out sodomites- though I suspect this suggestion means Dr. Klein owes an apology to evil drugged-out sodomites). Are we at the point where we believe the investing public unable to understand debt ratios and credit ratings? For they seem to flock to LIPOs regardless of these statistics. Are we confusing an appetite for risk with stupidity? Headlines that read "flippers leave Burger King IPO investors holding the bag" confuse me for this reason. Either the investing public is smart and some fraud involving non-disclosure of debt obligations has been committed, or they are dense and who do we blame for that? (The baby boomers and sex education, according to Dr. Mark Klein).
Comments from the likes of Standard & Poor's Steven Bavaria to the effect that "...we are trying to shine a light on an area of the market that was previously opaque," make me wonder what sort of investors S&P thinks are out there.
We have a phrase for this kind of analysis at DealBreaker—Exactly Right. Without the additional debt, the share price would be higher. Investors buying into a leveraged IPO are getting shares discounted for the additional debt. You pays your money and you gets what you pays for.
LIPO Suction Malpractice [Going Private]