|
|
 |
|
| Feature |
The Tables Have Turned: Private Equity
Eileen P. Gunn
08/01/2005
|
The offers they received from
others had all been in a similar dollar range, so Bradshaw just called his first
runner-up, Riordan, Lewis & Haden, and asked if that firm still wanted to do
business. It did. Since the deal closed in 2001, Bradshaw’s sales have more than
doubled to about $250 million a year, a result of both internal growth and
acquisitions.
Heightened Expectations
The heady valuations that result from this flood
of private equity liquidity may cause problems down the line for those owners
who would like to remain active in their businesses. Private equity firms,
beholden to their own investors, still need to squeeze double-digit returns out
of their portfolio companies, which is more difficult when they pay a great deal
for their stakes.
“It’s a scary thing for [the private equity] business
generally. The higher the price, the more equity you can put to work—but you can
sacrifice returns,” Frontenac’s Noard cautions. This means firms cannot afford
to give as much breathing room to companies that do not perform as expected.
They might be quicker to take advantage of their majority stake by pushing the
board to make the decisions they want, and they might be faster to push aside a
business owner they had previously supported.
“The private equity guys will
romance the owner and tell him what he wants to hear before the deal is closed,”
notes Joe Meissner, an executive agent based in Portland, Ore., who introduces
CEOs to private equity firms. “But the case where a founder stays with the
company for the long term is rarer than a management change somewhere along the
way.”
Private equity firms have found that they need to differentiate
themselves in order to win the best deals. For many, that means honing a
specific expertise, say in franchises, family businesses or managing
acquisitions. This expertise is often the decisive factor in a company’s choice
of an investor. “We’re asking (our investor) all the time to come in and help
with this or that,” Bradshaw says. For example, he notes, “They have knowledge
of the financial markets and how to do deals that we wouldn’t, so they’ve been
helpful with our acquisitions.”
Bradshaw believes that the complication of
working with the private equity firm is a fair trade-off for the advantage of
having its capital and advice on hand. Before they took outside money, though,
two generations of Bradshaws sat down to talk about all the things that might
happen if they brought in an outside investor. “We all understood that this
would open up new opportunities and options for us,” he notes. “We’re well aware
that the company could be sold down the road. But if you’re dead set on hanging
onto your business in exactly the form it’s in today, then you shouldn’t do a
private equity deal.”
Photography by David Allan Brandt.
Eileen P. Gunn is a Brooklyn-based writer who has written about personal
finance, executive careers and real estate, among many other topics. epgunn@hotmail.com
Additional Information
 The Public Eye
|
|
|
|
|
|
|
