Private Equity investors vs Strategic Investors
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According to your experience and opinion Private Equity investors more often destroy or create value? Are there any best practices that Private equity investors should know and apply which can prevent from destroying value in Private Equity investing?
The statement whether PE (financial) firms create or destroy value, in comparison to strategic firms is hard, at least for me, to answer.
My experience of working in M&A for 10 years is that PE will take a troubled firm and will make changes, e.g. cutting costs, slashing management overhead to bring it’s P&A and Balance Sheet to the point where it looks attractive for a strategic buyer.
Our company (a strategic investor) buys companies from both strategic and financial (PE) sellers. We buy to address inorganic growth needs. I don’t have any perspective whether -or- how often a PE firm is successful vs. unsuccessful in turning around (or parlaying) an acquired company into something worth more value. Just like vultures play a part in the ecosystem,… so do PE investors. They’re often willing to do things which Strategic investors will be much slower.
Obviously, the industry suggests that the PE investors play a valued role, and they’re being compensated very well for their efforts.
From my experience, some Private Equity funds solely prioritize identifying a thesis and investing other people’s capital in it, with hopes that it may yield results. In smaller private equity firms, there’s often a significant portion of managers who view the company merely as a stepping stone to another job. This is partly due to the typical 10-year investment and disinvestment timeframe, which many individuals are unwilling to wait out.
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