In case you missed it, private equity firm Eurozeo found
another private equity firm Pai Partners, to purchase
Asmodee a couple of weeks ago for $1.2 billion euros or roughly $1.4
billion dollars America. Given that Eurozeo spent
about $143 million euros in 2013 to purchase the company (That’s
about $167 million dollars American), Eurozeo is getting a pretty good return
on its investment, quintupling the amount originally invested in the purchase..
However, I have seen some people wonder if the purchase of arguably the premier
board game company in the country by a private equity firm a good thing?. First, it would probably be helpful to define
what private equity and a private equity firm are. From Investopedia:
“The simplest definition of private equity is that it is
equity – that is, shares representing ownership of or an interest in an entity
– that is not publicly listed or traded. A source of investment capital,
private equity actually derives from high net worth individuals and firms that
purchase shares of private companies or acquire control of public companies
with plans to take them private, eventually become delisting them from public
stock exchanges.”
If you have set up your store or company as an LLC or a
subchapter-S or any other form of corporation and all of the shares of stock in
the corporation are owned by you or you and your partners, with none offered
for sale to the public, either on an exchange or OTC (Over the Counter), you
have private equity, that is stock in a company that is not available to the
public. I cannot buy shares of stock in Asmodee NA. I can, and do, buy shares
of stock in Hasbro, because I want to own part of WOTC, and, since WOTC is a
wholly owned subsidiary of Hasbro, the only way to gain any ownership of WOTC
is to buy Hasbro stock. Similarly, a private equity firm, such as Eurozeo, does
the same thing, buying up all of the stock in a company, taking the shares off
public exchanges and removing ownership of the company from the public, only
doing this with multiple companies. Given that, here are three reasons why the
sale of Asmodee to a private equity firm should not concern anyone in the
industry.
1.
No one knew Asmodee was privately held. Until
news stories started circulating about Eurozeo’s plans to sell Asmodee, people
in the industry knew Asmodee was privately held, just like most other game
companies (and game stores) are. It just didn’t concern anyone because Asmodee
kept doing what it had done before the original purchase and after the original
purpose, putting out games (and buying up or entering into partnerships with
other game companies).
2.
A lot more companies are privately held than you
might think. As noted above, most game companies in the industry, whether
publisher, distributor or retailer, are privately held. In fact, a lot of the
businesses you deal with every day are privately held companies. Here is a
list of a lot of them.
3.
Debacles like Toys
R Us are very rare. Bain
Capital, KKR and Vornado used a leveraged
buyout to take TRU private, borrowing lots of money to buy TRU,
with the expectation that TRU would generate enough profits to repay the debt.
They figured wrongly and destroyed the company. Pai Partners’ willingness to
pay 5 times Asmodee’s 2013 purchase price indicates the company sees
significant value in the company. Pai will likely use debt to finance part of
the purchase, since the company’s website says it
likes to take an equity state in a company, meaning money invested, of between
100 and 400 million euros, leaving the rest of the Asmodee purchase to be
funded through debt. However, Asmodee has a much stronger market position than
did TRU.
So, I figure, unless PAI uncovers something really bad in
Asmodee’s financial statements, the sale will go through and the company will
keep making great games, just as it did under Eurozeo’s ownership
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