Private Equity Makes Right Argument to Europe, Conveniently Mum On Homefront

Private equity firms are quaking at the prospects of increasingly difficult political conditions for their business in Europe. While they bask in the glory (and money) that Sarbanes-Oxley brought to their industry in the US, they are doling out cash and "dialoguing" throughout Europe to avoid a Sarbox-esque straitjacket for their endeavors in Europe. Here in the US, private equity is thriving due to the excessive costs and onerous burdens placed on public companies in the wake of the scandal-ridden 1990s bubble, of which Sarbanes-Oxley is the most visible and onerous of many straitjackets. For many companies, it just isn't worth being public anymore. Private equity firms have been only to happy to take these companies off the public markets, after which they will avoid multi-million dollar compliance bills, slash costs, and reinvest the savings back into the company. After a few years, private equity lobbyists will have successfully gotten Sarbox reformed and they will sell these companies right back to the public much more expensively than what they bought them for. It is a great business model, but the Europeans are bristling at this model being applied to any great extent there, because it inevitably will clash with union dominance. Private equity shops obviously see the massive restructuring potential in Europe, but realizing that potential will entail several pounds of flesh out of union hides. Thus the political opposition and thus chaps like Schwarzman pressing the flesh.

While the ultimate goal of a more free-market approach to capital transactions and a hands-off regulatory philosophy in the halls of Europe's governments would be a good thing, private equity poobahs are not the most sympathetic of characters as they exploit regulatory burdens on others at home while they seek to avoid those same burdens on themselves abroad. They are not arguing from a strong foundation of principle.