In the short term, very few private equity deals will be completed, but the light at the end of the tunnel is not very far away, said Raymond Svider, ’89, co-chairman of BC Partners, a leading private equity firm with offices across Europe and in New York. “Once the irregularities of the current environment fade, people will look at the data and continue to put money into private equity,” Svider said.
Svider provided the afternoon keynote presentation during the Eighth Annual Beecken Petty O’Keefe & Company Private Equity Conference, sponsored by the Polsky Center for Entrepreneurship and the student-led Entrepreneurship, Venture Capital & Private Equity Group, at the Chicago Cultural Center on February 20.
Currently, private equity must carefully engineer its approach to investing, exploring different deal structures, and different geographies, Svider said. “We must take more risks, but that does not mean being stupid,” he said.
More buyouts will fail, investments will decline, and exits will be difficult, Svider said. “The increased number of secondary transactions provides fantastic opportunities to get things on the cheap,” he said.
The few deals signed and completed in the short term will be very successful with exceptional returns, Svider said. “The market will be more rational, which will be good for the whole industry,” he said. “You’ll see deals that are better financed, better structured, and more sustainable.”
Private equity succeeds because of four primary factors, Svider said:
1. Its top firms pick better businesses than other investment platforms and then develop those businesses well. Private equity can influence management in ways public boards cannot.
2. Management in PE deals behaves as owners. In buyouts, sustained growth is directly linked to value creation for management.
3. Firms have the ability to make decisions unhindered by bureaucracy and are prepared to take risks.
4. Although the learning curve is slow, PE consultants develop experience, intuition, and keen judgment.
Succeeding in private equity requires a wide range of skills and a long list of attributes, Svider said. Among them are:
1. Prioritizing and focusing on the right deals to consider.
2. Being able to make decisions, instead of leaving options open – a practice that makes some business people uncomfortable.
3. Choosing the right businesses by using proper judgment backed by analytical data. “You either prove your thesis or back out,” he said.
4. Negotiating with discipline by sticking with a predetermined price.
5. Effectively owning businesses by approving business plans and budgets, monitoring companies, and maintaining the right balance in relationship with management. “You can influence things,” Svider said. “If you get their respect, very often management might call to ask what you think.”
6. Interacting on a daily basis with the businesses, including acting as a key participant in significant corporate events.
7. Supporting, replacing, and compensating management.
8. Selling companies by understanding the “buyer’s universe,” accurately explaining a company’s value, and thinking strategically.
The Entrepreneurship, Venture Capital & Private Equity Group chose Svider as a keynote speaker to provide an international perspective on private equity, said second-year student Nathan Saegesser, co-chair of the group. “He pointed out that the United States and Europe are two very different markets doing private equity,” Saegesser said. “Many of the other topics of the conference were U.S.-focused, whereas he added the extra insight on the international side.”
— Phil Rockrohr
Read more coverage of this event:
Private Equity Must Find 'Businesses That Can Weather the Storm'