The operating side of PE
(Chimp, 3
Points)
on 11/9/12 at 4:00am
Does anyone have any experience on the operating side of private equity, where instead of doing deals you are working with portfolio companies in which your firm has invested? I'm trying to get a sense of what being on this part of the business is like, and am looking at jobs in this type of function.
Has anyone worked in this kind of position? Or, if not, has anyone in a more traditional role worked closely with advising portfolio companies - not just sitting on their boards but getting more closely involved with their operations and management.
Hi During the summer I worked
Hi
During the summer I worked at a MM PE firm and due to small headcount I got to work on all sides of the deal including a little bit of operations.
Here is my modicum of experience. From an analyst perspective PE firms try to deduce methods to increase the efficiency, scope or scale of a firm. For example would firm X be more efficient if we moved production plant x to location y or should we change how the contract/licensing structure of the products are. It is vastly different every time depending on the company, industry and deal. This only occurs if a PE firm acquires a controlling share of a company or if a company is willing to acquiese operational decisions or inputs.
Usually most firms have a select group of operating directors, that may or may not directly work for the PE firm. The operating directors, especially if controlling shares are acquired, are placed on the BOD of the acquisition. The operating directors then implement the necessary changes that they feel are appropiate. This can be anything from changing management, to changing production methods, to attractive new clients depending on depths of connections.
An interesting scenerio is when a PE firm owns multiple firms in the same industry. My firm did. Here the PE firm might attempt to find cross synergies between the companies by either combining ops or implementing each others comparative advantages but keeping the firms seperate entities. The firms might be kept seperate entitites if the core market segments are just vastly different.
I don't have much experience so take everything I say with a grain of salt but that's my 2 cents.
OP: pm me
OP: pm me
And so it goes
I also work at a PE shop
I also work at a PE shop where the headcount is lean so I am doing some portfolio management (especially on one company we recently purchased).
A huge value add is actually sitting in on their calls and looking at how they're looking at bolt-ons and future acquisitions. We gave them an x amount budget/allowance that they can use for acquisitions so while the process is theirs, we lend our expertise to make sure they do good deals and that they know how to value the company (we help them model out earn out structures and arrive at a firm price). You might be surprised but most companies/corporations have a really really unsophisticated way of doing acquisitions/bolt ons where they can pay for a small company with near to zero due diligence and with a simple 1 page P&L model.
However the most interesting part of managing a company is looking at new initiatives and capex spend. So instead of just looking at a financial statement and seeing 100 million in capex, you get to actually work with management in how to allocate that effectively. It helps a lot for information based companies to have a very solid plan where you will contact them every day or week and see the progress they're making on a new initiative such as expanding to a new country or a new product.
The product stuff is interesting but my favorite is expanding the company overseas. That's when you get to travel and help with the smallest details such as which building to rent out as well as big picture things like working with that country's local government with regards to regulations/taxes/etc.
Anyways, there's a million things you do in running a company so I won't list it all here but I find that managing companies (30% of my time) is just as interesting as looking at new deals (70% of my time). However, you might want to look at operationally focused PE firms if you want to ONLY do portfolio management where they actually split up investment team vs. operations team.
Or you can go to a shop where you do a bit of both which happens I think in most mid market PE shops. The megafunds a majority of the time will be focused on just modeling/acquisitions at the junior levels since the seniors will take care of actually "running" the company.
See my WSO Blog
The old "operations" myth.
The old "operations" myth. Operations in PE will consist of:
--Add-On acquisitions
--Occasionally helping with budgeting and analyzing big capex projects (especially if financing is needed)
--Sitting on calls / going to board meetings
You won't be doing really "operational" things. People have this idea in their head that you'll be some sort of business demi-god who does the deal and then runs the company. That's not the case. Not for the Associates, not for the VPs, not for the Partners. The job of running the company goes to the company. You provide help with things that are in your wheel-house, not in theirs.
This is not to say that you won't learn a ton of stuff, but it's almost always going to be around financials.
As a side note, I think deep-down, we all want to be doing things, creating things as opposed to buying things and looking at them as abstract spreadsheets. Hence the constant bubbling up interest in PE for "operational experience."
Check out my WSO Blog
PE usually use specialist
PE usually use specialist consultants (post deal team, 100 days...) or very experienced ex-CEOs to run these operational changes. A number of PE now pay for operational due diligence work to be done during the deal due diligence to help them identify future sources of operational savings. This space is getting more and more active and some firms have now their own small operational team in house. This has been reinforced by the recent debt crisis when no one could sell anything and PE firms had to sit on some crappy investment whose EBTIDA was melting every quarter...
TheKing: As a side note, I
As a side note, I think deep-down, we all want to be doing things, creating things as opposed to buying things and looking at them as abstract spreadsheets. Hence the constant bubbling up interest in PE for "operational experience."
So true man.
I've been curious about
I've been curious about portfolio arms of megafunds, e.g. TPG Ops Group, KKR Capstone. How do these places compare to MBB in terms of:
1. Day-to-day work
2. Pay
3. Promotion curve (i.e. is it as structured a career path leading to partner or out or is it more industry-style with unpredictable tenure between promotions)
4. Recruitment (requirements, selectivity) - i.e. how difficult it is to lateral to one of these from MBB.
5. [This forum's favorite] Prestige - aren't you seen as a second-class citizen who wasn't good enough to make it to the investment team?
Would anyone care to chime in?
No one?
No one?