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Master of the Universe's exit no surprise

Revelations that one of the private equity masters of the universe, Adrian MacKenzie, will call it quits at the end of the year after watching CVC's equity investment in Nine Entertainment turn into a festering $1.9 billion hole, is little surprise.

CVC is a big global private equity player with a reputation that is being hurt by three Australian disasters that Mackenzie presided over. While he has had a few wins, the high profile disasters dwarf them. These include Nine, I-Med and Stella/Mantra Group, which was bought out of the collapsed MFS. While CVC still holds hope that it will get some money back it is an investment that hasn't been easy sailing.

The message from today's front page of the Australian Financial Review is that MacKenzie walks and that CVC is not planning to pump any more investments into Australia until it cleans up some of the messier investments and restores credibility.

CVC will write off the entire $1.9 billion in Nine unless the restructure gives them a tiny carried interest. Even Goldman Sachs, with around $1 billion mezzanine debt, will be forced to write off a big chunk of its investment.

While there are a lot of threats that Nine will be put into receivership, the reality of that happening is low given that it is hard to see who would benefit — apart from the receivers — from such a draconian move.

For now, the parties involved are looking at the Goldman Sachs proposal, which has the imprimatur of CVC. A resolution is expected to be found before D-day, which is February 13.

The problem is CVC isn't alone. Many private equity funds overpaid for assets, leveraged them to within an inch of their life, and are now sitting on some big lemons.

For investors, most of which are super funds, it means a drag on their already challenged returns. Private equity investors — again, many super funds — would be unimpressed with the impact this investment has had on their returns. Ironbridge is one of many that spring to mind. It paid heavily for CanWest Radio and Television in New Zealand. It would be interesting to see if there is much value left in its equity.

Private equity giant KKR's investment in Seven West has also been challenging.

Another private equity play is Warburg Pincus, which is still way behind on its investment in waste management group Transpacific Industries.

In the past couple of years some companies owned by private equity funds collapsed. These include Colorado, Angus & Robertson and Borders. The departure of MacKenzie will put the focus on other private equity funds, which have a reputation for remunerating their people well. While some funds have performed well and had more good assets than bad in their funds, others have not and it is these that will face increasing pressure from investors.

7 comments

  • There seems to be some obsession in Australia, with financial firms only taking on people with finance experience and / or from Bain, Mckinsey, Booze
    The hubris in this is alarming, given people with finance experience can be just as, or more, stupid than the rest of us.
    These geniuses, or masters of the universe, as they see themselves, are directly responsible for the financial volcano upon which the world now sits.
    Perhaps if these people actually give some credit to those with diversified experience, such disasters would be less frequent.

    Commenter
    Erin
    Location
    Sydney
    Date and time
    September 20, 2012, 12:55PM
    • I can’t agree enough...i learnt the lesson the hard way when i lost a lot of my savings based on advice from these people and later when things unravelled they could not even tell me what was wrong or how derivatives worked. They are blinkered and have very narrow vision and do not understand commercial realities.

      Commenter
      KKN
      Location
      Melbourne
      Date and time
      September 20, 2012, 2:22PM
  • When the key to a top position in a public company is a nice set of hair, how are these continuous mega-collapses surprising?

    Commenter
    Wmb
    Date and time
    September 20, 2012, 1:05PM
    • Mots of these private equity companies are parasites and leeches who do nothing for the companies and the people that they dominate. I'd have no trouble nationalizing these assets and running them out of town.

      Commenter
      Harvey
      Date and time
      September 20, 2012, 1:43PM
      • As a sage old financial markets guru once told me: "Private Equity is a remuneration strategy with an investment option".

        Commenter
        Alasdair
        Location
        Adelaide
        Date and time
        September 20, 2012, 1:48PM
        • The performance of CVC on Channel Null, iMed and Stella is nothing short of disgraceful. And to think these guys paid themselves mega bucks in the process. They and their plethoria of advisers should be made to repay the mega bucks they have taken, in my opinion perhaps stolen. I only hope my super wasnt invested with these mongrels but who would know. I agree with Wmb that the qualifications of these so called Masters of the Universe is totally dubious. One wonders if the age discrimination that is rampant in financial services and private equity is not part of the problem. A little bit of grey hair around the place may have questioned these excessive stupid buy side valuations. Private Equity be damned more like con artists extraordinaire!!

          Commenter
          Disillusioned
          Location
          Sydney
          Date and time
          September 20, 2012, 3:10PM
          • Let's not feel sorry for these guys. These Masters of the Universe are nothing but greedy self centred morons lacking in ethics and any concept of reality. I have been waiting for the day when their closed world would start to implode and am pleased to live to see that day. First the big Mac and now the rest of the fraudulent bunch ...... oh such sweet joy and happiness.

            These MotUs deserve all that they are getting and are about to be inflicted with. Good riddance.

            Commenter
            Ciao
            Date and time
            September 20, 2012, 3:36PM
            Comments are now closed
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