It's never pretty when billionaires fight. Like a midnight duel between alley cats, it's generally noisy and fruitless, and when the screeching is over, both parties walk away bloodied and licking their wounds.

Now, you may think I'm talking about the three-way battle among Hewlett-Packard (NYSE: HPQ), Oracle (Nasdaq: ORCL), and SAP (NYSE: SAP) that's making headlines lately. ("We hate our CEO." "Fine, we'll take him." "No, you can't have him -- well, OK, but write us a check ...") But no, this week we have another feud on our hands, and once again, it's chock full of headline-worthy names. Yesterday, Blackstone (NYSE: BX) Senior Managing Director David Blitzer took issue with comments that Berkshire Hathaway (NYSE: BRK-B) head Warren Buffett has been passing around about the private equity industry.

Specifically, Buffett derided private equity players as only in it for the money, buying companies with the sole purpose of selling them later for a profit, whether or not they "know the business." (What? A profit motive in a capitalist economy? I'm shocked!) Buffett boasted that Berkshire has never bought a company out of PE ownership, implying that by the time private equity is done chopping up a shop and ready to sell it, it's damaged goods, unworthy of buying.

Now, there's some truth in that. For example, you know this Seagate (NYSE: STX) going-private transaction that everybody's talking about? I'm pretty sure it will happen; the stock is shockingly cheap. But that comes as little consolation to investors who bought in the previous time Seagate exited PE ownership. Take a look at the stock's chart and you'll see it has basically flatlined for eight straight years, as the Nasdaq soared. The only folks who profited from that IPO were the private equity wizards who engineered it.

Still, Blackstone's Blitzer argues that overall, "private equity-backed IPOs perform in-line or better than all other IPOs." In deriding them, Blitzer says, Buffett may have "his own agenda which at least one should be aware of."

Specifics, please?
What agenda might that be? Blitzer plays coy on the point, but here are a couple possibilities: For one thing, the more negative sentiment surrounding private equity, the less likely shareholders will back management that wants to sell its companies into PE ownership. If this reduces demand for such "going-private" transactions, it will logically depress the companies' asking prices, helping White Knight Buffett ride in and scoop up these corporate damsels in distress on the cheap.

But there may also be something going on "behind the curtain" here. According to Ambitionmag.com, Buffett is arguing with KKR and TPG Partners, the two private equity firms that took TXU private back in the mergers and acquisitions heyday of 2007. Turns out, Buffett wasn't so down on the whole private equity phenomenon back then -- at least, not when he could make money on it. In fact, he had Berkshire buy up $2 billion worth of the debt that was used to finance TXU's going private.

Problem is, since TXU went private, plummeting natural gas prices have ruined the value of the business for its private equity owners. (Hmmm. That comment about private equity not "knowing the business" takes on a whole new level of significance now, doesn't it?) The value of the bonds Buffett bought are scraping along at serious discounts, and now, KKR and TPG are asking bondholders to share in their pain -- by refinancing the debt at close to $0.70 on the dollar.

According to Ambitionmag: "If [Buffett] fights and [TXU] doesn't do a large enough bond exchange, then the company will almost certainly default on its obligations. If he gives in, he automatically loses money and enables an action that S&P recently said would be the equivalent of a default. Heads he loses, tails he loses."

Fool me once, shame on you -- but what's Buffett's excuse?
So it's little wonder Buffett is a little down on private equity. But Seagate, TXU ... does this really mean the whole dang industry is rotten? Should you, the individual investor, lacking both Buffett's genius for finance, and his multibillion-dollar safety net against the occasional bad deal, slam the door when private equity comes a-knocking with a hot IPO?

Not necessarily. Just as with any other investment you make, you need to exercise reasonable care when considering an IPO backed by private equity. Is the business sound? Is it profitable? Is it coming to market loaded down with too much debt?

If the answers are yes, yes, and no, I see no reason not to buy. In fact, I recently did buy a former private equity holding, an under-the-radar retailer by the name of Express (NYSE: EXPR), which Limited spun off to private equity ownership back in (you guessed it) 2007, and that recently had an IPO again. The company returned to the public eye carrying a passel of debt -- but it's profitable, generating copious free cash flow, and to my Foolish eye, undervalued.

Coincidentally, Express also will report Q3 earnings in two weeks, so here's hoping Buffett was wrong about private equity being a boondoggle.

If you're looking for overlooked and undervalued stocks yourself -- private equity-backed or otherwise -- enter your email in the box below and we'll send you "Motley Fool Top Picks & Perspectives 2011," a new free report with stock recommendations and portfolio guidance for the year ahead. We'll also tell you more about Million Dollar Portfolio, our real-money portfolio service that buys the best of our investing ideas, opening for the last time this year. To get started, just enter your email in the box below.

Fool contributor Rich Smith owns shares of Express. The Motley Fool has a disclosure policy.

Berkshire Hathaway is a Motley Fool Inside Value recommendation. Berkshire Hathaway is a Motley Fool Stock Advisor selection. The Fool owns shares of Berkshire Hathaway and Oracle.

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