The funds committed by investors to private equity for 2007 demonstrate confidence that it continues to produce superior returns. If this is the case, it must be adding value. Even though the timescale for private equity may be different and the extent to which they can bring enduring change, as yet unknown, can public companies learn from private equity’s approach to managing businesses?
The days of creating value simply through financial manipulation, multiple arbitrage and the break-up of companies are long gone, despite what some current commentators might think. To secure the best deals, private equity firms have to apply intelligent strategic thought and tactical thinking to auction processes and managing the businesses they acquire. It is in this area that they guard their secrets most closely, collaborating with industry partners to create the most attractive future for the business, or clubbing together with other private equity buyers to maximise financial firepower.
There is no secret formula for success, but private equity firms do business in a distinctively different way to their corporate counterparts. Principally, it is a matter of focus on the core activities. From the first day of private equity ownership of a company, the culture is different and there is increased appetite for change and a relentless focus on creating value and an exit.
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