Dealbook: A Growing Aversion To Ticker Symbols

DAVOS, Switzerland

Reporters and editors from The Timess Sunday Business section offer perspective on the week in business and beyond.

AS Stephen A. Schwarzman, the chairman of the Blackstone Group, strolled out of a panel, Is Bigger Better in Private Equity?, at the World Economic Forum here on Friday, he recounted a recent conversation he had with the chief executive of a public company.

The guy said to me, Geez, I wish you could buy us, but were too big, Mr. Schwarzman recalled.

The size of the company in question?

Only more than $125 billion. (He declined to identify the mystery chief executive.)

Everyone, it seems, wants to be private.

Its on everyones mind, acknowledged Richard B. Evans, the chief executive of the giant aluminum producer Alcan, a $24 billion public company, during a lunch discussion about activist investors.

Now that the big private equity firms have hundreds of billions of dollars to spend, many more public companies — perhaps even $100 billion companies — may soon lose their ticker symbols.

Last year, private equity represented 20 percent of the mergers and acquisitions market, more than double the year before. No one at a symposium on Thursday night that included Stephen G. Pagliuca of Bain Capital, Peter Weinberg of Perella Weinberg and Jeffrey Rosen of Lazard, among others, seemed to be worried about a downturn anytime soon.

Indeed, about 64 percent of the attendees at the dinner said they expected private equity to account for 26 percent or more of the M.& A. market in five years, and some predicted that it would reach one-third of the market or more.

Those, of course, are the people who are making the buyout deals. But even Mr. Evans, the chief executive of a big public company, laid out the case for going private.

In some cases, there are advantages to being private, he said, ticking off a list of benefits that went far beyond what he described as compliance overkill at public companies. He said that the mind-set of public company mangers and board members was often wrong. Theres a preoccupation with risk aversion, he said. Its the opportunity cost thats lost.

Donald J. Gogel, the chief executive of Clayton, Dubilier & Rice, the large private equity firm, agreed. We have an unfair advantage, he said. Another factor in private equitys favor: the ability to pay enormous pay-for-performance packages without an outcry from public shareholders.

As one buyout king put it over drinks here, If one of my C.E.O.s made $100 million, Id say thats great because it means that we probably just made $2 billion.

What is unacceptable for a public chief executive becomes a powerful incentive in the private sphere.

You know, its ironic, said the buyout king, who spoke on the condition that his firm not be identified because he did not want to upset his investors. Calpers screams when a public company C.E.O. is making a lot of money, but are completely content as a limited partner in a private equity firm to pay him a fortune when the company is private.

(Clark McKinley, a Calpers spokesman, said that his fund considered the same issues in both its public investments and its limited partnerships in private equity funds. Calpers private equity partners are apprised of our corporate governance guidelines from the beginning, he said.)

Not everyone is convinced that the entire world will be taken over by private equity.

John A. Thain, the chief executive of the NYSE Group, said that all these going privates will soon be going public again.

Half of last years initial public offerings on the New York Stock Exchange, which the NYSE Group operates, represented private equity firms exiting their investments, Mr. Thain said, making buyout shops our biggest customers. He also suggested that as interest rates continued to rise, low-cost leverage would evaporate, and buyouts of listed companies would look less attractive. The cycle will change eventually, he said.

And despite the rah-rah talk about private equity here — Mr. Schwarzman had a line of well-wishers when he announced on Thursday that he had raised his bid for Equity Office Properties to more than $38 billion — there were some concerns that the rise of private equity had been almost too fast and would be closely scrutinized by governments around the world.

They should no longer consider themselves untouchable, said Philip J. Jennings, general secretary of UNI Global Union, the international association of trade unions, which says it has 15 million members in 150 countries. They are like a global vacuum cleaner Hoover-ing up assets any place, anywhere, any time and we want to bring them out of the shadows.

While not speaking directly about private equity, Chancellor Angela Merkel of Germany called for more transparency in all businesses. I see the need to catch up with hedge funds, she said.

Still, at least for now, it appears that the call for more transparency may be private equitys best calling card. Mr. Schwarzman recounted how a chief executive at a company he acquired told him how much he was looking forward to board meetings now that the company was private.

What was so different?

The chief executive told him that as a public company, whenever the directors meet they bring their own lawyers.

DealBook also has a newsletter and a Web site, nytimes.com/dealbook, that is updated continuously when markets are open.

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