Matthew Bishop over at The Economist.com makes the salient point that the concern over private equity buyouts is getting a bit hysterical:

THE backlash against the private-equity boom is becoming a tad hysterical. Take yesterday’s Financial Times (of February 5th), in which John Gapper issues a ìwake up callî about what he says may be the next big financial scandal, ìmanagement buy-outs of public companies by executives backed by private-equity firms.î
What is the problem, exactly? According to Mr Gapper: ìTo state the obvious, any chief executive who plans to buy the company that he or she leads faces a huge conflict of interest with its shareholders. The job of an executive is to make a company as valuable as possible so that its shares fetch the highest possible price. But any director who bids for a company is eager to pay as little as possible so that he or she can reap the maximum reward in the future.î
Still, Mr Gapper concedes that not every management buyout is ìinherently flawedî. That makes him a moderate compared with another financial writer, Ben Stein, who wants them to be made illegal.
As Mr Stein claimed not long ago in the New York Times, ìmanagement buyouts are great for management. But by every standard I can see, they are yet another sad sign of how our corporate trustees have lost their moral compass. The time for them to stop is long overdue. If the stockholders have hired you and pay your wage to manage their assets, your job is to do that for themónot to buy them out at fire-sale prices and turn around and make billions that rightfully belong to them. The management buyout is a sad and infuriating avatar of a decadent age.î

Whoa, Nellie, says Bishop:

Mr Gapper and Mr Stein talk as though the mere existence of a potential conflict of interest will lead directly to wrongdoing. But one of the great strengths of capitalism is its ability to develop efficient mechanisms to manage conflicts of interest. When a boss considers selling his firm to private equity, the check on him is particularly simple: the shareholders of his firm must approve any sale. In a few recent cases, such as a bid for CableVision, shareholders have considered the offer inadequate and blocked the sale. That is evidence, not of a brewing scandal, but of market forces at work.

Indeed. My anecdotal experience is that a good sign to hold on to one’s pocketbook firmly is when someone tells you that it is better to have fewer bidders competing to purchase something. Indeed, my sense is that a management-led, private equity-financed play for a public company is usually just as likely to spur competing offers for the company as it is an attempt to lowball the public company’s shareholders. When the folks who know the most about a company’s business show that kind of confidence in the value of the company, that sends a strong signal to the market that more value can be made. Such confidence tends to be contagious.