Podcast: What Private Equity Can Do For You
Provided by Loewen & Partners
In the May 27th FP Executive Podcast, Jacoline Loewen, Loewen & Partners (www.loewenpartners.com), talks to Sacha Ghai of McKinsey & Co about his recent research of the major trends in private equity. Sacha discusses how PE investors create value for their portfolio companies.
What is Private Equity?
First of all, Sacha talks about how the definition of Private Equity is a misnomer as it includes debt and additional fund types such as venture, real estate, infrastructure, mezzanine, and distressed debt, among others.
Private Equity is relatively new industry that has experienced strong long term growth and increased deal volume. However, it is cyclical in nature with the record amount of US$625 billion raised in 2007 and US$554 billion in 2008. The fundraising activity has continued to decline into 2009. Currently, private equity has over $1 trillion of dry powder globally ready to be invested.
Does Private Equity create “real” value?
Sacha discusses how the current economic downturn has prompted business owners to look for capital in places other than their local banks. However, many are wondering whether private equity is the right choice for them. Sacha discusses how private equity creates value and for whom – business owners, fund managers and society.
Interestingly enough, Sacha’s findings show that although buyout firms outperformed the public market, the average results were similar or worse. Only the top quartile of funds delivered consistently superior performance. Generally, those PE firms that achieve premium results maintain their superior fund management in its successor funds.
How value created and what is it like to work with a private equity firm?
Sachs goes into detail about how private equity creates value for both investors and business owners. PE investors who are top performers drive value throughout the term of the cycle of the investment:
• Deal sourcing – provide access to proprietary deal flow, leverage brand and industry network to aid the process
• Due diligence – present insights on potential improvement and links to external advisors
• Deal structuring – help align incentives for business owners
• First 100 days – establish clear actionable strategies and provide access to management expertise
• Medium/long-term – institute aggressive monitoring and refining of strategies
• Exit – provide insights on timing and tailored strategies for different buyer alternatives
Listen to the complete interview: The Financial Post Executive: What Private Equity Does for Your Business – Sacha Ghai, McKinsey & Company