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EquityFC Blog
Showing entries posted in November 2008
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Reading round-up | 26 November 2008
I've been storing up a whole bunch of interesting reading for FCs and FDs seeking positions in PE-backed companies or already working in them. Great news on finance exec pay, some interesting challenges (and opportunities) for the PE industry and some food for thought. Enjoy:
Watson Wyatt has some advice on successful PE firms during the credit crunch. "The new world will reward those long-term and selective managers with
strong track records of creating value through accelerating the
earnings growth of their portfolio companies.” Great news for finance execs, who are well-placed to help.
At last, a half-decent look at recession planning for mid market business from the mainstream media - including positive input from PE managers.
And a positive piece on how PE is keeping its powder dry, from the Economist - well worth a read (and read Barbarians at the Gate if you haven't yet. Really. It's important.)
Another "PE returns to managing for growth" piece, this time from the FT: "A lot of people in private equity, and the managers they’ve brought
in, are all about delivering significant growth. Now they have to put
in downturn plans and think about restructuring, and that’s not their
core competency – this is where consultants can come into their own." Enter the finance function, natch.
All this demand for strong, creative finance execs is pushing up pay for those that can deliver, according to CFO.com. the downside? Turnover among senior finance execs is on the rise - it's the sack for those who can't deliver.
Two excellent posts from a blog you should really add to your RSS feed: PrivateEquityBlogger. First, on growth in PE-backed businesses: "A key advantage of private equity firms holding a company is that it
can focus on long-term needs and changes, unlike many public companies." Second, a post about CFOs at PE-backed businesses: "As chief financial officers anticipate a greater role and higher
compensation in private companies the transition from large public
companies to smaller private equity firms may become more and more
attractive, even with the inherent risks." (Actually, let's add a third: this examines issues in PE-backed turnarounds, which I suspect is getting more relevant by the day.)
Happy reading! (Oh, and feel free to email if you don't know what an RSS feed is: richardDOTyoungATgmail.com
How to | 17 November 2008
Check out this brief review of a short book by Orit Gadiesh and Hugh MacArthur called "Lessons from Private Equity". It sounds pretty high level, but if you're considering a move into a PE-backed business or you're getting to grips with PE backing, it could be just the train reading you've been looking for.
Blogger Theo O'Brien picks out these lessons form the book - as I say, basic, but useful:
1. Define the Full Potential: Use strategic due diligence to set a target "increased equity value".
2. Develop the Blueprint: Develop a plan for achieving that goal.
3. Accelerate Performance: Putting the plan into action by matching the blueprint to your company and overcoming obstacles to success.
4. Harness the Talent: Hiring
the individuals that can make your company's blueprint a reality by
either looking inside the company or seeking outside talent.
5. Make Equity Sweat: This
is a fundamental aspect of private equity firms managing a company,
relying on "managing working capital aggressively, disciplining capital
expenditures, and working the balance sheet hard."
6. Foster a Results-Oriented Mind-Set: Take
the private equity disciplines learned in the book and implement them
permanently into your firm's culture and periodically reevaluate your
company to ensure it is maintaining the formula for success.
LBO houses struggle, but PE keeps its powder dry | 13 November 2008
There's still a lot of money committed to PE funds*. They have a great opportunity to ride out the recession and pick up some sweet assets on the cheap. (Heck, just ask those guys from the Gulf about the great deal they've got with Barclays.)
But for the big LBO players, there has been pain and misery to endure - albeit fairly quietly. According to Dealbreaker, it's not just a scarcity of debt for new deals - old debt is causing headaches, too.
The blog cites a Deal Journal piece stating: "Debt funds managed by Apollo Management and Blackstone Group's GSO
Capital Partners recently fended off margin calls from banks as the
prices of debt that they invested in were hammered, according to people
familiar with the matter." Yikes. So buying that debt - which might have looked a good way to circulate your money and boost fees 12 months ago - is now looking iffy. My heart bleeds.
Here at EquityFC, we love the PE crowd, of course, but the mid-market players are most secure in our affection. Minimal financial engineering, maximum management transformation - that's the secret of sustainable value creation. Which is more fun for FCs and FDs too, of course.
(*Well, why not? Interest rates are practically zero, public equities are tanking, corporate debt is pretty much all junk now and commodities are plunging. Hell, even if those guys never deploy it and still charge a management fee, at least you'll get some money back...)
Is this a big day for FDs and FCs? | 4 November 2008
Yes, the US general election has finally arrived after a $2bn campaign and plenty of hot air. But does it mean anything for this community - private equity and the FDs and FCs at the companies the industry backs? I'm going to say.... yes.
The reason is simple: sentiment. Right now, as the polls are opening (Dixville Notch in Coos County and Hart's Location in Carroll County cast their votes at 5am GMT), this feels a little like the election that brought Tony Blair to power in 1997. Tired of an ersatz conservative regime - Bush's budget deficits are about as far from fiscal responsibility as you can get without going bust - the people are turning to a younger man in the race, one promising change and a new beginning. Remember what it felt like when Blair won? There was a renewed sense of vigour in the UK, a feeling that we had a fresh start when anything was possible.
That feeling boosts activity, it makes people more confident, more positive, more energetic. And that can only be good for a world economy - after all, it's no exaggeration to say people in every country are interested (in the truest sense) in how today turns out.
The dissenting opinion? It could be more like 1992. After all, the economy is in a similar state now. We were militarily involved in the Middle East, house prices had plummeted, there was a recession... and the seemingly unstoppable juggernaut of the opposition to a long right wing government faltered at the last, making fools of the pollsters.
Ironically, of course, while the Major government destroyed itself over the next five years, the country didn't do too badly. Even "Black Wednesday" is now seen as a boon to the British economy.
But on balance, the US and the world needs its fresh start. Barack Obama might well end up disappointing us as Tony Blair did eventually. But if he can indeed instill a sense of hope in consumers, business people, the international community - even bankers and the enemies of the US (who might, just might, be a bit less barbaric when faced with a conciliator - and I'm talking about both groups there) - then we can set about our business with a bit more vigour.