Too many people question the value that private equity firms bring to the table. They claim that PE firms are just a bunch of financial folks who take poorly-performing companies private, do some complicated financial mumbo-jumbo and without doing any significant changes, flip companies on the public exchanges for significant gain.
I recently saw an interview with Larry Bossidy, former CEO/Chairman of a number of Fortune 500 companies and he seemed to completely agree with this view. He even went further-saying that PE firms are full of very poor operations people!
With all due respect to him and others, they couldn't be further from the truth. PE firms may not be full of super-smart operations people but they bring politics-immune common-sense management to any company. How many of us have sat through meetings where we have wondered-now what the hell is going on here? Or been to corporate events where money flowed like water. Or seen IT and HR fiefdoms created due to politics. Or seen sales and marketing folks drink single-malts like fish on the company dime. Or seen people take 4 hour lunch breaks. Or seen expense accounts larger than your monthly salary...
So what do PE firms do? Well nothing complicated. They simply take all those decisions which companies will never take because vested interests will never let them take these common-sense decisions. Maybe they are not brilliant operations people-but maybe that's not even needed.
They spend the company's money like you would spend your own money. So they make out like bandits in the process. And last I checked, that was allowed.
I recently saw an interview with Larry Bossidy, former CEO/Chairman of a number of Fortune 500 companies and he seemed to completely agree with this view. He even went further-saying that PE firms are full of very poor operations people!
With all due respect to him and others, they couldn't be further from the truth. PE firms may not be full of super-smart operations people but they bring politics-immune common-sense management to any company. How many of us have sat through meetings where we have wondered-now what the hell is going on here? Or been to corporate events where money flowed like water. Or seen IT and HR fiefdoms created due to politics. Or seen sales and marketing folks drink single-malts like fish on the company dime. Or seen people take 4 hour lunch breaks. Or seen expense accounts larger than your monthly salary...
So what do PE firms do? Well nothing complicated. They simply take all those decisions which companies will never take because vested interests will never let them take these common-sense decisions. Maybe they are not brilliant operations people-but maybe that's not even needed.
They spend the company's money like you would spend your own money. So they make out like bandits in the process. And last I checked, that was allowed.
3 comments:
Sometimes, the PE firms milk the company too. There is this leading investment bank which has a stake in a Korean cable TV company. They have already lead managed a bond issue for the company and are now planning to co-manage their equity issue in 2007. That's a lot of fee gotten easily because they have a say in the management. Surely, there must be several more such examples.
N
They also spoil the sleep of some INSEAD alum, who think that is where the maximum money is made.
-A
May I humbly submit that maximum money is made in hedge funds not in PE.
-R
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