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What I learned about my company from a PE firm

by on December 3, 2014

Private equity (PE) firms have sometimes been called “Vulture Equity”.

PE firms have a bad reputation for coming in, cutting costs, firing people and taking over businesses. But PE can be an excellent growth opportunity and even become a partnership for struggling companies.

There are a lot of misconceptions around PE firms and they mostly involve EGO.


As head of Strategy and Corporate Development for a privately held global security firm, Lumension, we preferred not to sell to a PE firm.


We rationalized our position by saying a PE firm wouldn’t pay the multiples or value that a strategic buyer would pay.  That may have been true but the reality was that there we no strategic buyers willing to pay what we wanted.

What we really didn’t want to admit was that the company wasn’t worth what we wanted it to be worth.

Ultimately, the business was sold to a PE firm, Clearlake Capital, in May 2014.  The firm has identified opportunities for greater efficiency and is implementing the plan for creating incremental value. The goal is to sell for a significantly higher valuation within 3-5 years.

If the business had been well performing like we wanted it to it likely would not have been sold to them.

What did we learn?

That we needed to look at our company the way a PE does!

What a PE firm does is to take an unwanted or unloved company or piece of business, paying a premium (usually) to shareholders, and then working over the next three to five years to improve the business.  The PE firm is taking a risk on an underperforming asset with the intent to improve the business.

But why wait for a PE firm do come in and make the improvements?

The changes they make can be made by existing management.

However, often those inside the company are too close to the problem and therefore unable to see how to apply these simple processes or how to refine them when the situation changes.  With bigger companies come increased complexity, and opinions, and fog. Sometimes the best opportunities are buried away just waiting to be uncovered.

Let’s examine some possible steps more closely.

Sometimes to improve the business, or take multiple steps forward, the PE firms need to take a step back. Sometimes this means that in order to save the business some parts need to be rationalized or shut down, and sometimes jobs need to be eliminated to improve cash flow so the business can once again invest and grow.

In these cases, without the actions taken by the PE firm, the company would likely go bankrupt or dissolve thereby causing an even greater number of lost jobs than those lost in the turnaround steps taken to save the company.

These actions to save a company are the ones most misunderstood. In some people’s minds any lost jobs are bad.

But sometimes the company made bad decisions and hired too many people for the firm to run profitably and these poor decisions must be undone.

And sometimes the business models have not been modified to keep up with competition and so their costs are too high to be successful.

Whatever the case, cut backs and restructuring are healthy tactics to return firms to profitability and growth. And after all, the objective of business is to make money. Customers demand to pay the lowest cost possible for goods and services.

Therefore companies need to be as efficient and lean as possible to compete effectively and accomplish this.

Hidden value, defined as value that can be liberated within a financial quarter or two with little to no effort, exists in most every business and comes in a lot of different forms.

PE firms know this. They’ve raised millions of dollars and are actively buying companies so they can do exactly that – unleash hidden value.

Make some small tweaks and increase value.

This activity allows the CEO to see the company the way a PE firm would and enable the ability to make changes so that the company can be sold for a premium.

There are opportunities to increase your company’s valuation – hiding right in front of you.

But they’re not the ones you’ve been looking at.

The trickiest part is identifying the correct amplifiers to focus on and leverage. They’re different in each company and identifying them is the most important part.


If you’re wondering how you build a company that you can sell it for premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn How to Quickly Increase Your Valuation – A Proven 5 Step Process.

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