03 September 2018
The future of value-creation in the private equity market
The future of value-creation in the private equity market
Few aspects of the financial markets have changed as much as the private equity market. From being known as asset stripping barbarians to transforming the IT-area in the United States – times have changed. Over time, investors have taken an increasingly active role in their investment companies, and now a new model for business is in the process of evolving.
Much of the success of private equity can be accredited to a higher level of control through the execution of strategies and management of acquisitions. As the current economic climate is moving towards a downturn, investors are taking further steps towards value-creation through active ownership.
Bear Stearns follows the new model of successful private equity firms and focuses heavily on collaboration with a team of investors working alongside the management team. As a result of a solid understanding of the opportunities and challenges of day-to-day operations, investors can improve quality through a combination of operational expertise and strategic vision.
Managers at midsize companies are often focused on day-to-day operations, and rarely have the time freedom to identify and implement new strategies, even with guidance from investors. The goal therefore, is for the investors to give specific advice as well as provide the management team with the required resources to carry out those strategies.
This new model recognizes the uniqueness in each investment and each corporation, and as such, it requires more flexibility. A move away from the standard 10-year lifespan is already the norm. Taking a more long-term view can have significant positive effects as investments can be made without the pressure of immediate return that often haunts public markets. Jeremy Isaacs, founding partner of JRJ Group, states that their competitive advantage is as “patient investors.” Wise words.
Bear Stearns follows the new model of successful private equity firms and focuses heavily on collaboration with a team of investors working alongside the management team. As a result of a solid understanding of the opportunities and challenges of day-to-day operations, investors can improve quality through a combination of operational expertise and strategic vision.
Managers at midsize companies are often focused on day-to-day operations, and rarely have the time freedom to identify and implement new strategies, even with guidance from investors. The goal therefore, is for the investors to give specific advice as well as provide the management team with the required resources to carry out those strategies.
This new model recognizes the uniqueness in each investment and each corporation, and as such, it requires more flexibility. A move away from the standard 10-year lifespan is already the norm. Taking a more long-term view can have significant positive effects as investments can be made without the pressure of immediate return that often haunts public markets. Jeremy Isaacs, founding partner of JRJ Group, states that their competitive advantage is as “patient investors.” Wise words.
Creating a system for integration
While this system provides a significant change in and of itself, the real difference in value will come from add-on deals that are well-integrated into the company model.
Traditionally, after the right investment had been found, the goal of the private equity firm was to make minor refinements to the operations and find accretive acquisitions. Acquired companies were often added to the mother company without cohesion or proper communication between the different business entities. Now, investors are moving towards a system that brings all components of the business together for a cohesive organization.
That means that if one strategy is detrimental for one part of the company, it’s detrimental for the whole. Having this mindset, investors can create a business where the totality is more valuable than the sum of the individual parts.
Having a model for acquisition and integration ensures that the organization is given a cohesive strategy and lowers the average acquisition costs. The hands-on approach of investors is also crucial in determining which acquisition would provide the most benefit.
That means that if one strategy is detrimental for one part of the company, it’s detrimental for the whole. Having this mindset, investors can create a business where the totality is more valuable than the sum of the individual parts.
Having a model for acquisition and integration ensures that the organization is given a cohesive strategy and lowers the average acquisition costs. The hands-on approach of investors is also crucial in determining which acquisition would provide the most benefit.
Future-proofing the private equity market
As the current economic climate is toughening, a collaboration between investors and managers will prove to be especially important when companies need to navigate challenging market environments. At the same time, competition is toughening as new methods of raising private capital, such as family offices and sovereign wealth funds, are becoming increasingly powerful. The degree to which investors can create value with well-integrated add-ons can be the primary way for private equity firms to differentiate themselves.
At Bear Stearns we pride ourselves on our deep experience and ablility to transact on the cutting edge of the private equities markets and are becoming global leaders in effective execution.
At Bear Stearns we pride ourselves on our deep experience and ablility to transact on the cutting edge of the private equities markets and are becoming global leaders in effective execution.
For more information please contact us at: info@bearstearnscompanies.com
