Investors: Sarbox Alone Didn't Cause Private Equity Boom

Lora Bentley

Don't be so quick to blame Sarbanes-Oxley compliance costs for the growing number of private equity buyouts, says Harry Kraemer, a partner at Chicago's Madison Dearborn Partners. The assumption that public companies go private to get away from Sarbanes-Oxley requirements is incorrect, he says.


In a Chicago Tribune piece published yesterday, he says, "Think about it. The private-equity firm is going to keep Sarbanes-Oxley completely up to date."


The truth is, the private equity market and the public stock market are not as different as one may think. Yes, it's true that privately owned companies aren't subject to pay disclosure rules or Securities and Exchange Commission audits, as public companies are. But, the story points out, private equity exists in the same economy with the public market, and private and public companies alike address the same risks and take advantage of (or miss) the same opportunities.


Neither is it true that private equity managers borrow more money or that private companies ultimately do better financially than those on the public markets, according to the Tribune. The difference, it seems, is that the level of the private equity manager's wealth is directly proportionate to the success of the company -- a survival of the fittest, the writer says.


If you're good at your job, your company will survive and you will do well. Otherwise, watch out.

Add Comment      Leave a comment on this blog post
Apr 11, 2007 8:15 AM Milo Milo  says:
Sarbox alone didn't cause the increase in private equity buy-outs, so what? Did it discourage buy-outs? or Does it impose another (in this case huge) unnecessary burden on public companies and squander shareholder wealth on valueless compliance. Personnally, I think the latter... Reply

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