So full disclosure, I'm an accountant and don't know fuck all about PE. This article piqued my interest, however, and I was wondering why they would buy the company just to leave the current management in place, including the CEO?
I thought the whole point was to buy a company, replace all the management with your own dudes, and perform better? If everyone involved is optimistic about the management, optimistic about the market position, and optimistic about growth, why is Bain buying, and why is the current ownership selling?
Hopefully someone can give me some insight on this.
Not at all. Replacing management only happens so often (folks who work in PE can comment on the frequency), but you are correct in that the simplest terms the goal of PE is to buy a company, optimize its performance then cash out. I couldn't tell you the answer to why the transaction is happening.
Some PE deals do not involve operational improvements and are strictly financial engineering (overburden with debt, as you pay off debt the equity portion becomes a larger portion of ownership and therefore worth more).
In this case, Oaktree almost sold to Bain on two other occasions but the deal never happened because of price. From Oaktree's perspective they've owned TI for a while and there might be a million reasons why they would sell now. Bain might think certain things about the market while Oaktree might see risk in market trends, etc.
Touching on the above comment, if the seller is another PE firm it may want to cash out and return capital to the fund's original investors (even though they might expect decent returns on the investment going forward).
"A source familiar with the deal told Crain's that Kozyra had a troubled relationship with Oaktree and other board members and that the deal "is likely a sigh of relief" for the company's chairman."
Sometimes people don't mesh well.
http://www.plasticsnews.com/article/20150202/NEWS/150209996/sale-to-bai…
PE shops have many tools in their arsenal to drive IRRs. One of which is replacing the Management, but that's more of a means to an end rather than the key "strategy." Case and point - Mid to Large PE shops have what we call "Benches" of operators (read: Management) that are ready to parachute into troubled operations on short notice. Its just a tool in the arsenal, not really the key reason one would buy a company.
PE shops have a few main strategies when buying a company, all of which are IRR-centric, if it doesn't juice returns, we don't care.
1) Multiple Arbitrage. Translation- buy target at 8x EBITDA, sell at 10x. Buy low sell high. Common when you have deep relationships that allow you to buy below market. 2) Financial engineering, as others have mentioned. Recapitalize the business to optimize debt/equity ratios. 3) Operational (turnarounds). NOW we see management changes take place. 4) Roll-ups. Buy a Platform Company, and initiate "bolt ons" that quickly grow revenue. More Revenue means higher multiples in many cases, larger companies are worth more per dollar of earnings. 5) Asset driven strategies. The sum of parts is worth more than the whole, sell pieces of the business off.
These are just a few examples, and many times many strategies are in play at the same time. Every PE shop strives for multiple expansion, every PE shop restructures the financials on a majority of deals, etc.
What is up, Janet? Rate increase in September?
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