Growing the 'Private' Club

GROWING THE 'PRIVATE' CLUB
[SOURCE: Wall Street Journal, AUTHOR: Orit Gadiesh & Hugh MacArthur]
Private equity is becoming a benchmark of performance for CEOs and boards of directors. Boards are asking themselves, "What would we do differently if we were privately held?" The answer is a lot. Public-company shareholders are often passive or cast votes by dumping shares. And public companies are constrained by Sarbanes-Oxley, which can slow down or hamper fixes needed for the mid-to-long haul. Private-equity shareholders -- particularly those from top firms, like Blackstone -- behave like active owners. They understand the companies they own and drive them to address problems more rapidly while investing more deeply in attractive longer-term initiatives. What does this mean? For one, private-equity firms invest with a thesis for improving performance in a realistic, but aggressive time frame -- three-to-five years. Compare that with public companies' quarterly earnings scramble and a sense within public companies that each business they own will be a permanent part of the corporate portfolio. For another, the best private-equity firms test their investment thesis hard after the deal closes with a detailed plan of where and how to build value. Their plans often include a few simple metrics -- e.g., cash, market and operating measures -- and top fund professionals frequently review and revise these plans with management. They swiftly move unproductive assets off the balance sheet. And finally, they compensate managers strictly on results.
http://online.wsj.com/article/SB118005241817814142.html?mod=todays_us_op...
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