Asset-Light/Virtual Buyouts
Hi everyone - I'm a novice in regards to PE as an incoming IB SA but I have a question surrounding buyouts post-pandemic. Since we have discovered that many businesses can operate remotely and that many employees prefer WFH flexibility, are there any PE firms that have specialized in acquiring certain businesses and transforming the business models to an asset-light model or even taking the firm completely remote? Wouldn't this strategy create value by increasing efficiency, making the businesses more adaptable, and opening companies up to a better talent pool as some top candidates don't want to be restrained to HCOL cities like NYC/SF? Also, what type of industries and verticals would best fit these models? If you are opposed to this or if there are clear constraints that prevent this from becoming a feasible investment strategy please share. Thanks!!!
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Hard to see this being a base underwriting case that could meaningfully move the needle. At my firm, it is just bad to base your underwriting assumption cutting salaries of employees, even if they are working remotely.
The efficiencies / talent gained from having a flexible WFH policy is probably not all that high - certainly not as high as just firing / replacing talent with offshored labor in countries like India, which has been a commonplace strategy in PE (see STG Labs).
From a MM and LMM perspective, optimizing human capital has always been a critical pillar of an investment. Having a specific theme on WFH is too limited in scope to be a thesis on which a firm builds its investment strategy. The commentary on access to talent outside of HCOL, adaptability, etc. is something that already happens on a daily basis throughout corporate America. Specifically, in human capital-centric businesses, you have always had this dynamic of contractors vs employees. Do you want to manage utilization, or do you want the flexibility of a contractor? Asset-light is honestly quite an overused term when discussing business models in finance. The dynamic nature of managing employees, executives, and teams means there is not a single approach, like WFH. PE firms will pay up for top talent, whether that is external recruiters, compensation plans, new office locations, WFH, etc. I'm also of the belief that when you are building a growing business there are only certain operations that can be WFH. Most management and executive functions aren't optimized for WFH in a MM or LMM business. I can tell you that having done multiple add-ons through COVID, you saw significant integration and alignment the moment teams started meeting together in person vs virtual meetings.
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