THE DISTILLERY: Private equity pinch?

The private equity bid for Spotless Group and interest in Pacific Brands have M&A onlookers thinking that private equity, such a dominant M&A force in Australia before the global financial crisis, has returned. However, The Age's Adele Ferguson brings news of a lesser-known story that some private equity firms are having to do more and more secondary deals to make up for mistakes made in the lead up to the global financial crisis. Some private equity firms are back, but others have their backs to the wall. Meanwhile, the scale of the crisis that the US housing market still finds itself in features in this edition of Distillery, along with a useful analysis to explain post-Australia Day absenteeism against the backdrop of productivity.

But first, it's The Age's Adele Ferguson, who adds a few important disclaimers to the notion that private equity is back.

"It is for some, but for others 2012 spells another year of challenges, fund closures and investment collapses as overpaid retail assets buckle under massive debts. Private equity funds tend to keep hold of assets for five to seven years, tart them up, then on-sell them via a trade sale or initial public offerings. With equity markets going backwards, IPOs have become a struggle, particularly for private equity. The perception is that private equity IPOs burn shareholders. While there have been a few IPO successes, there have been several high-profile burnings… With fewer avenues to exit, the market will see an increasing number of secondary deals – and tertiary deals – between private equity funds that can't find any other way to offload, or flip the asset, so they sell to each other.”

Meanwhile, The Australian Financial Review's Chanticleer columnist Tony Boyd points out that the source of the global financial crisis, the US housing market, is still in the toilet, and Federal Reserve chairman Ben Bernanke is relatively powerless to fix the situation.

"The frustration at the Fed about this was evident in Bernanke's comments this week when asked at the press conference on Wednesday about a $US25 billion mortgage settlement plan being worked on by state attorneys-general and US banks. He pointed out that this amount of potential foregiveness of mortgage debt was about 30 times smaller than the actual problem. The fact is that the negative equity in US housing is $US700 billion, and Bernanke questioned whether forgiving $US25 billion in principal on non-performing loans was the most effective way to deal with the problem.”

The Sydney Morning Herald's Jessica Irvine has a bit of fun this morning after discovering research pointing to a significant drag on the Australian economy in the form of too much alcohol the night before a work day. The immediate conclusion is those who enjoyed Australia Day to its fullest extent are a drag on the nation's productivity this morning if they've called in ‘sick'.

"But because productivity is defined as output per hour worked, workers chucking sickies and not working at all, does not affect the nation's productivity. Indeed, turning up to work and producing at below your usual capacity is the real productivity concern. The economic modellers Econtech, supplying yet another satisfyingly large and round number, have estimated the total hit to the economy from such ‘presenteeism' at $26 billion. So do your throbbing temples and the nation's flagging productivity performance a favour: stay at home.”

For the rest of this morning's business commentaries, the Herald Sun's Terry McCrann says the Reserve Bank's expected rate cut next month will trigger an all too predictable media firestorm when the banks don't pass on the full amount. The Australian's Jennifer Hewett hits similar notes, while her colleague Adam Creighton says the big four banks should increase their capital ratios out of respect for the implicit guarantee that taxpayers give them.

In company news, The Sydney Morning Herald's Ian Verrender says BHP Billiton and Rio Tinto aren't so much ignoring the warnings from the World Bank and the International Monetary Fund with their massive spending programs; it's simply that they're investing beyond this period of economic pain. And The Australian's John Durie still isn't convinced by the $800 million Optus will be paid to shut down its HFC cable network as the National Broadband Network is rolled out.

On international matters, Mathew Murphy investigates the decline of Australian wine exports in the Fairfax pages, while The Australian's Judith Sloan shares her experiences at the icy cold World Economic Forum meeting in Davos, Switzerland.