Restructuring the Hold
Optimizing Private Equity and Portfolio Company Partnerships
Thomas C. Anderson, Mark G. Habner
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Restructuring the Hold
Optimizing Private Equity and Portfolio Company Partnerships
Thomas C. Anderson, Mark G. Habner
Über dieses Buch
Establishing an effective partnership and achieving improved outcomes for investors and management teams during the hold cycle
Private equity represents a productive and fast-growing asset class—building businesses, creating jobs, and providing unlimited opportunity for investors and management teams alike, particularly if they know how to work together in candid and effective partnerships. Restructuring the Hold demonstrates how investors and managers can best work together to optimize company performance and the associated rewards and opportunities for everyone, not just the investors.
Through brief references to the parable of the Gramm Company, a middle market portfolio company, readers will follow the disappointments and triumphs of a management team experiencing their first hold period under private equity ownership, from the day they get purchased through the day they get sold. Restructuring the Hold provides the reader both general knowledge and more detailed better practices and frameworks relating to specific time periods during the hold. Within this book readers will find:
- An examination of a typical middle-market private equity hold period
- Guidance for newly acquired management teams on what to expect during the hold period
- Descriptions of better practice operating cadence between investors and management teams
- Examples of effective partnerships between investors and management teams
- Discussions of topics relevant to typical hold periods, including organizational structures, operations improvement, selling pipelines and acquisition integrations
With guidance from Restructuring the Hold, private equity principals and portfolio company executives can take steps toward greater collaboration and better outcomes. Through updated practices and strong relationships, they can partner effectively to improve portfolio company performance, which will lead to better outcomes for both investors and management teams.
Häufig gestellte Fragen
Information
Chapter 1
Private Equity
“…it's our land. We measured it and broke it up. We were born on it, and we got killed on it, died on it. Even if it's no good, it's still ours.That's what makes it ours – being born on it, working it, dying on it.That makes ownership, not a paper with numbers on it.”– John Steinbeck, Grapes of Wrath
The Asset Class
The Players in Private Equity
- Limited partners (LPs) are the individuals and institutions (e.g., pension funds, endowments, insurance companies, sovereign wealth entities, etc.) who provide investment equity. LPs are the investors in the fund, which is managed by a private equity group (PEG). In other words, they provide the capital that the private equity firms use to invest. LPs are typically not involved in the day‐to‐day activities of the general partner. They simply select the private equity firms and funds in which they want to invest, monitor performance remotely, and expect sufficient returns on their capital. For larger private equity firms, the limited partners are often large institutional investors, while for smaller firms, they might be high‐net‐worth individuals or family funds. Often, a private equity firm will raise their funds from dozens of limited partners, including both institutional and private money.
- Private equity group (PEG) is the catchall term we will use in this book to refer to the terms general partner, private equity firm, buyout firm, and private equity fund synonymously. While there are differences in definition and scope among these concepts such that the term PEG is not a perfect fit, those differences need not concern us here. What is consistent is that the PEG decides (within prearranged bounds) where to invest the limited partners' money. It does this by accumulating portfolio companies and monitoring and influencing those investments over time to optimize performance. The PEG decides when to sell or “exit” each company in its portfolio so that they can provide sufficient returns to the investors.
- Portfolio companies are purchased with LP equity and augmented with debt capital as determined by the PEG. Each portfolio company (or portco) in the PEG's portfolio represents an individual investment. The PEG monitors and manages each investment to optimize returns to the limited partners. The LPs may have investments in specific portfolio companies, in the broader portfolio of companies, or both. Either way, each company in the portfolio is critical to the performance of the entire fund. If fund performance is poor, meaning that one or more portcos underperform, the PEG will have a hard time attracting future capital from LPs, thereby risking the PEG's ability to continue investing and operating.
- Professional services firms such as accountants, attorneys, and consultants are employed to guide and support portfolio company performance improvement. Typically, it's the portco that retains the service providers, but the PEG will have a say in their selection and provide guidance and steering to those providers.
- Commercial banks provide the debt capital (the leverage on investment equity), enabling the PEG to invest in bigger opportunities and more of them. While the PEG will certainly play a big role in bank selection and relationships, each portfolio company will incur the debt on its balance sheet. Servicing that debt through high monthly interest payments is often a fresh hurdle for companies new to the private equity world. Throughout the hold period, the portco and PEG will work to pay down the debt, reducing monthly interest expense and also increasing the future net exit value when the company is later sold.
Private Equity Groups: Firms, Funds, and Process
- Fundraising. Responsible for investor relations (IR) and courting limited partners. The PEG raises a new fund every few years, during which time the IR team is particularly busy.
- Investing. Responsible for investment and exit decisions, as well as for structuring and securing sufficient equity and debt funding for each deal. The investing team typically has the most people in the PEG, ranging from new associates to partners with lengthy tenures.
- Operating. Responsible for operational oversight of the portfolio companies. The PEG's operating team is usually quite small, consisting of very experienced practitioners, typically former CEOs and executives or senior expert consultants.
- Administrating. Responsible for overall fund administration, accounting, and reporting on investment performance to the limited partners. Compliance requirements are certainly not insignificant, and fund administration is an important but behind‐the‐scenes player.
Risk and Return
Inhaltsverzeichnis
- Cover
- Table of Contents
- Title Page
- Copyright
- Dedication
- List of Figures
- Foreword
- Preface
- About the Authors
- Acknowledgments
- Introduction
- Chapter 1: Private Equity
- Chapter 2: New Ownership
- Chapter 3: Month 1: Consternation
- Chapter 4: Month 2: This Might Be Okay
- Chapter 5: Month 3: Guarded Enthusiasm
- Chapter 6: Quarter 2: A Bit Overwhelmed
- Chapter 7: Quarter 3: Gaining Momentum
- Chapter 8: Quarter 4: Ringing the Bell
- Chapter 9: Year 2: Improving Infrastructure
- Chapter 10: Year 3: Expanding Beyond
- Chapter 11: Year X: The Exit
- Chapter 12: Conclusion
- References
- Index
- End User License Agreement