By contrast, private equity shareholders – particularly those in topquartile firms – behave like owners. They understand the companies they own and drive them to restructure more quickly and invest more deeply. They also motivate their managers strictly on performance. That mindset, along with the levers that private equity has used successfully before, will likely play a key role in the plan to transform hrysler. Indeed, when private equity succeeds it presents an enormously compelling business model. Over the 35 years from 1969 to 2006, the top quartile US private equity funds had annual rates of return ranging from an average of 39% to well over 200% through good times and bad. It doesn’t always go according to plan, of course. And some boards are pushing back against the notion that private equity firms have some sort of magic dust. In April, British supermarket chain J Sainsbury resisted repeated offers from a consortium of Blackstone, TPG and Kohlberg Kravis Roberts & Co. because it felt management should be able to solve its own problems without taking on the massive debt involved in going private. Others have concluded the same thing.
All the same, active investing has set a new standard: PE is becoming an inescapable benchmark of global business performance for CEOs and boards of directors. That’s part of the lesson behind the Chrysler deal. Many boards are reviewing the “leveraged buyout case,” asking themselves, “What would we do differently if we were privately held?” No one business model holds a monopoly on performance or sustained profitability. Still, the results among the best private equity firms speak for themselves. A carefully planned private equity deal can be bolder, faster and more transformative while publicly listed companies are typically slower and must push that much harder to take the same level of risk. Until that changes, the private equity business model will keep growing – and more iconic brands are likely to follow Chrysler and see their destiny in private hands.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
All the same, active investing has set a new standard: PE is becoming an inescapable benchmark of global business performance for CEOs and boards of directors. That’s part of the lesson behind the Chrysler deal. Many boards are reviewing the “leveraged buyout case,” asking themselves, “What would we do differently if we were privately held?” No one business model holds a monopoly on performance or sustained profitability. Still, the results among the best private equity firms speak for themselves. A carefully planned private equity deal can be bolder, faster and more transformative while publicly listed companies are typically slower and must push that much harder to take the same level of risk. Until that changes, the private equity business model will keep growing – and more iconic brands are likely to follow Chrysler and see their destiny in private hands.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative
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