You don't hear much in the news about private equity groups. But, the decisions that they make have HUGE effects on business and commerce in this here US of A.
Today it was announced that the deal has been completed for a private equity buyout of the big money-making arm of General Motors.....GMAC. The equity group(s) purchased a 51% stake in GMAC.
The usual questions followed. Did GM sell this successful wing just for the cash it needed to fund their operations? Why would GM shed a "star" performer?
Experts are indicating that because of the General Motors situation, perhaps a situation that could include the word "bankruptcy" in a sentence, the big money guys have down-rated the value of GMAC, because it was "connected" to GM. This equity purchase will kick GMAC back up in the financial ratings.
There are private equity groups of all sizes and flavors. Do a GOOGLE for "private equity" and you will see what I mean. The private equity companies with web sites will give you a litany of reasons why you should choose them. And a lot of those reasons make sense.
Put yourself in the position of a small manufacturer. Call yourself Cyburbia Window Box Company, located in a small town, maybe about 100 employees, doing very well, thank you. At some point you reach a position where you cannot substantially grow your business unless you get some heavy-duty financial help. Your plans include organic growth (growing your window box biz) and growth by aquisition (you want to buy a competitor who has those cool stainless window boxes that urban dwellers just go wild for). You make enough to support your family, your retirement, and your employees make a nice living. You do not have enough to acquire that competitor.
Enter the private equity firm.
In many situations they will KEEP the present owners and the top management staff. Their goal.....known from the get-go.....is to get you funding help (and some management tweaking) to grow your business. The usual investment period for a private equity group is 4 to 7 years. They usually plan on a very large increase in the VALUE of the company, from the time they partner with the management teams until they sell to another PE group.....or the company gets big enough to do an initial public stock offering.
Go ahead, do that GOOGLE, and check out the names of the companies that private equity groups are holding. Good example: Gibson guitars.
Anybody else have thoughts.....positive or negative.....about this way of doing business?
What say you?