What’s a Private Equity Owner Gonna Do?

Today’s blog on private equity firms comes from Peter Allen, Partner and Managing Director, TPI.

Doing nothing is not an option.  With a cloudy horizon for IPO activity of size, outsourcing and offshoring seem to be gaining favor as tangible courses of action for the active investor to insist upon.

Outsourcing and offshoring were often seen as a transformation of back-office functions that require a protracted program of change. They were never an area of focus for private equity firms looking to reintroduce their portfolio companies to public markets. That paradigm is now long-gone.

In the good old days, a private equity firm would buy a company with an eye towards giving management the runway to make structural changes. Without the burden or scrutiny that comes through public disclosures, acquired companies were “flipped,” often possessing a very different cost profile or set of products/services.

 

Those days weren’t too long ago.  Just a few years back we saw huge
investment funds gobbling up big companies. These funds were a way to
achieve dramatic returns through restructuring actions that were
undertaken without the glare of quarterly earnings reports that
reflected the disruption a transformation often entails.

That’s how investors reap the rewards of their investments and the end
game is most commonly the return to the public markets via a public
offering of stock.

Fast forward to today’s recessionary markets and lackluster IPO
landscape, and you’ll find many investors driving the consideration of
outsourcing and offshoring for their portfolio of companies.

So, what’s a private equity owner to do?

Based on our marketplace interactions, many investors drive the
consideration of outsourcing and offshoring by serving on the Board of
Directors. The private equity representatives are studying the economic
levers associated with improving the cost-capacity-capability
dimensions of their companies and they’re challenging management to
take action, improve the structure of the business, and weather the
storm of a soft equity market. We see much of 2008’s demand for
outsourcing coming from the financial sponsors of companies more so
than ever before.