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The private equity name game

The Private Equity Council announced earlier this week it is now the Private Equity Growth Capital Council.

"Our new name better conveys what private equity is all about: growing companies," said PEGCC President Douglas Lowenstein in a statement.

That's not what many lawmakers thought during the peak of the buyout boom a few years ago when the industry was able to take advantage of cheap debt, scoop up companies and make huge profits -- even if the companies they took over didn't fare so well.

The New York Times' Julie Creswell wrote a terrific story last year about the unfortunate fate of Simmons, the mattress company, which generated huge profits for the firm Thomas H. Lee even as it descended into failure.

She wrote:

A disproportionate number of the companies that were acquired during that frenzy are now struggling with the enormous debts. More than half the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms, according to analysts at Standard & Poor's. Among them are household names like Harrah's Entertainment and Six Flags, the theme park operator.

With this new name, the industry comes much closer to rebranding itself as "growth capital," which sounds pretty close to "venture capital." The VC industry, unlike the PE world, has enjoyed a better reputation in Washington by telling a compelling story about how it's aligned with the interests of the U.S. economy. Just look at John Doerr's influence on green policymaking.

And as concerns deepen over how to grow the U.S. economy faster, calling yourself "growth capital" isn't a bad idea politically. The timing is right, too. The debate over how to tax the incomes of private equity partners has resurfaced.

Lastly it's worth noting that "private equity" is itself a fairly new term. A lot of these firms were known primarily as leveraged buyout shops, but that name has fallen out of favor in recent years as their activities have expanded. And even before LBO, I've been told the practice was known as "bootstrapping."

By Jia Lynn Yang  | September 17, 2010; 6:16 PM ET
Categories:  Private equity  
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