Blackstone PE vs. other firms
I've been looking into a lot of the BB PE firms like TPG, Silverlake, KKR and Blackstone and I was wondering how they differ in terms of investment strategy?
I know some PE firms like to focus on the financing arm when taking over a company while others focus more on improving the operations of the company. Any thoughts on what these firms focus on?
Lastly, I figure corporate culture varies a lot throughout different PE firms, some allstars while others appreciate more down to earth people. Any comments on this?
Any input is super appreciated!
TPG and KKR are most similar in strategy. KKR is stuffier than TPG in terms of culture. BX (I'm not so sure about this) is making a huge push towards real estate, which would reduce overall emphasis on the pure play PE business. Silver Lake culture is stuffy as well, focused on tech. All the funds have a separate operations team, but not sure which ones focus on that part of value creation more than the others.
The investment strategy is 98% identical across the board.
The difference is very slight nuances in approach and how they do their work".
Bain for example, likes to buy brands (like Dunkin Donuts, Toy R Us, etc), KKR probably falls into this fray somewhat too. That's about as much as I know about Bain. On KKR, they have a "full suite" approach to investing. They have their Capstone group that focuses on group purchasing and cost efficiency (much more so than strategy), they have KKR Capital Markets which is probably more robust than most in-house cap mkts functions at MFs, so it allows them really throw their weight around in getting aggressive financings done. And they have Special Situations and KKR Asset Mgmt which are essentially special situations/mezz-typeasset allocation which allow them to streamline more complex/hybird structures to get deals done.
Blackstone, while they are among the top 5-6 PE firms, they probably own the most companies that your mom has never heard of before, so they are on the opposite end of the spectrum. The comment about their PE business being less of a focus because of RE is bullshit, IMO. That only matters if you're the head of Private Equity at Blackstone and want something from the Board that has limited resources to allocate across the business lines. What that means for an Associate or even Junior Partner at Blackstone, probably nothing. Its an idea people like to throw around because they think it sounds smart, but its not.
Apollo is known to be the (and I use this word loosely) sleaze balls, they'll chip away on price until there's nothing left; they won't leave a penny on the table and will beat you up on negotiations until you need to be put in a medically induced coma to prevent additional brain swelling. They are masters of buying shit cheap.
Carlyle is the individual fund shop. They have like 70 or 80 distinct funds that they invest out of and 1 main buyout fund. This is really only of consequence to the LP community. In terms of investing, they are the DC powerhouse, they built their business on the back of Aerospace and Defense, I don't know how true that still is. As an associate, its much more silo-ed (for whatever reason) than other MFs. As an associate in the Consumer group, that group will be the only Carlyle you know for 2 years.
WP is the across-life-cycles pure-play PE shop. They invest exclusively in PE, no distressed debt (something that Apollo makes a ton of money doing) or anything else and they invest in early stage as well as late stage companies; so they do a lot more VC-type investments than any of the other large buyout shops. While Carlyle has 75 funds, Warburg probably has 300 portfolio companies.
TPG I don't know much about, but word on the street is they've been going through a very rough time.
In terms of what all these firms have in common, investment strategy is largely the same across the board with slight nuanced differences as I mentioned above. They all have similar fund sizes, similar return targets and invest in largely the same companies. A common misconception is the "strategy" aspect of PE investing. There is very little "this is what we should do with the business" involved. 9 times out of 10, you're backing a management team and their vision for the business. Sometimes the vision is a consolidation play and sometimes its just an opportunistic investment playing into macro and industry thematic trends with a solid management team that is expected to not fuck it up. But this notion that KKR board members are sitting around a table with the CEO telling him how they should re-vamp their go-to-market strategy is bullshit. You let the Management do what they do well, which is run the business. The PE guys will never know more about the industry/customers/competitors/products/business/etc than the CEO and other executives that have spent 30+ years in the industry. The PE guys do what they do well, which is deal making, encouraging lean management, capital markets instincts, etc. PEs guys have tons of experience stewarding companies through growth, optimizing cash flows and getting the corporate finance right. They also have a very deep bench of executive relationships, so when a portfolio company needs a CFO, they have a short list of very very solid candidates they can turn to as opposed to just promoting the good but not great VP of Finance. That's what a good PE investor contributes. This is what the PE guys do well that executives often don't.
In terms of culture, it really will vary by firm and by the group you'll work with within the firm.
Bravo.
you getting this on all comments?
Great post. Thanks. SB'ed
This and your add on posts below are gold. Thanks, @"Marcus_Halberstram".
wrg
idts
@"WallStreetOasis.com"
BTW the new captcha validation is really fucking annoying. Shouldn't this be triggered for new accounts, low posts, etc.
Didn't even realize there was a new captcha...we've been getting attacked in the last 10 days so may be due to our new security settings - I just dropped them a bit. Are you getting a captcha on each new post?
Thanks, Patrick
Among the megafunds, Warburg (growth equity/venture), Silverlake (tech), and Apollo (credit/distressed) are more differentiated in terms of their strategies/mandates.
TPG/KKR/BX/Carlyle look at very similar investments and you'll often see bidding against each other on broad sellside processes.
great synopsis @Marcus_Halberstram
Wow, Thanks Marcus! Tons of new insight for these companies.
Something to consider - it's basically becoming a trend for PE firms to have in house operations group, does this mean they're taking a strong hold on the management team and their decisions for a portfolio company?
I addressed this in my original post... PE investors don't know shit about running a manufacturer of precision ball bearings, they leave that to the company. That's why its so important to find a company with a solid management team. For some reason people think that a PE firm buys a company, fires the management, installs their own team and shows up to the factory floor every day to take a stroll through the production line. In reality, you look for a backable management team and let them do what they do best, as I mentioned above. I don't think people appreciate how difficult it is to find high quality (CEOs and CFOs in the top 10%) executives. There are enough unknowns in an investment the last thing you want to do is introduce a CEO into a system/environment in which he/she hasn't been before with uncertain chemistry within the organization. Generally, you'll only replace management or certain executives if (a) there's a serious problem with leadership or (b) if that was your thesis from the outset because you had a really really solid industry visionary on your payroll that you wanted to back in a compelling opportunity.
The captive operations groups are principally focused on cost savings and serving as a resource to supplement management. When my portfolio company CEO/CFO would have an acquisition they thought might be interesting, we'd do our own work on it and see where the numbers shake out. We'd look at a few different ways and if there were any insightful takeaways we'd share that work/conclusion with the Management team. Similarly, if the portfolio company wants to move downstream in their industry, the ops group might do some work on what that market looks like, what the dynamics are etc. But keep in mind, while a PE guy may be able to look at an M&A situation in a more creative way, a consultant generally doesn't have more market color than a CEO in his own industry. McKinsey works with 40 different chemical companies and so they get to canvas all that know-how to form an overarching view of whats going on in the industry. They have their pulse on the market. So while they cant tell the Dow Chemicals CEO more about his business than he already knows, they can tell him something about his business within the context of his competitors or the broader market that he doesn't already know. The ops group doesn't really have that connectivity anymore, so all they can lend is the strategic paradigms they've developed in their consulting careers. One of the other things they may do is identify KPI the company should be tracking and possibly improve that they may not already be doing.
The actual strategic value add (in terms of visions for the business, thesis etc) is really minimal. Like I said before, no one knows the industry/business/customers/vendors/products better than the people that have spent their life in the industry. I don't care which PE shop you work at or which consulting firm you came from, you will never be more knowledgeable about a business than someone in the Management team. He/she has likely spent their entire careers (15-25+ years) in the industry, possibly at that same company. I think a few of the MFs have some case studies on the value add of their operations groups floating around on the internet.
Great insider's perspective on the role. Thanks a lot.
Great comments. SB to each.
Blackstone has a lot of RE under construction -the largest platform. The Hilton Hotels IPO was 9 times oversubscribed, with Blackstone's stake valued at around $16 Bn on a $6.5 equity investment over 6 years.
@"Marcus_Halberstram" -well said.
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