J Crew takeover

Originally Posted by joneog

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Or put another way: it's easier to sell the public (or their agents) over-priced garbage. PE guys a bit more discerning.

Not at all what I said. And I also disagree.

Likely bad, because PE firms will bleed them. Oh well, I really liked shopping there the past 2 years. They have some really nice stuff.

Originally Posted by gdl203

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Not at all what I said. And I also disagree.

If you require a lower return you're essentially paying a higher multiple... most people will pay higher multiples if the story is good... people pay more for the same nominal return, it costs the firm less (see, you don't even need a useless model like CAPM to figure these things out)

You don't think PE firms are better at finding value than a mutual fund or someone with an Ameritrade acct?

I'd rather not get into this discussion too deep but your comments are essentially wrong. PE shops achieve higher returns in many ways (leverage, operational improvements, etc...), not by paying less than public investors - if that was the case, then there wouldn't be any take-private LBOs at premium to trading price, right? Like the J Crew one discussed here...?

Originally Posted by gdl203

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I'd rather not get into this discussion too deep but your comments are essentially wrong. PE shops achieve higher returns in many ways (leverage, operational improvements, etc...), not by paying less than public investors - if that was the case, then there wouldn't be any take-private LBOs at premium to trading price, right? Like the J Crew one discussed here...?

I realize this is going further off topic but if you're comparing actuall returns(not theoretical required returns) even if the PE firm pays a premium they are still doing a better job at finding value because they have already taken into account those assymetries - they realize they can increase actual returns. The public still may be overpaying and PE underpaying if theres a premium for exactly some of the reasons you stated. Also, I'm speaking in general terms here; there are times that the public may own or buy under-priced securities because they became contrarians (usually by default) once the hype is gone, bad headlines hit, extraneous issues emerge etc; not necessarily because they are good at finding value.

You don't see many deals at a discount because who wants to sell at a discount?

I see where you're coming from but common sense tells you that PE guys have some information/knowledge advantages to the average guy out there and can better spot cheap assets.

-jon