Private Equity Jobs

All manner of public commentators and political rivals have been beating up on Mitt Romney for his work at Bain Capital. But most, if not all, show a serious lack of understanding as to how private equity works and the value that private equity professionals bring, says Tom Dougherty in an article for TheRightSphere. He attempts to set the record straight in a lengthy piece worth reviewing.

For example, many critics seem to think that a private equity firm only has to answer to its own management, but nothing could be further from the truth. Management has to provide an adequate return to the firm’s key investors. Failure to do so would quickly doom the firm to attracting more capital.

Critics also fail to understand the dire situation that companies seeking private equity investment find themselves in. Often, the company cannot obtain capital from any other source, is not profitable and could be on the verge of bankruptcy.

Thus, when a PE firm puts money into a sinking company, they do so with the full knowledge that they could lose every dollar invested. Critics don’t acknowledge this risk or the return needed to make it worthwhile.

“The bottom line is the winners have to return such profitability that they offset the certain losses in the much larger percentage of companies plus the overhead required to operate the PE firm on a daily basis,” says Dougherty.

Of course the biggest knock against PE firms is that they’re “job killers” when they take over. But often times it’s the target company’s executive management, the CEO, CFO and other top executives, who get the axe. PE firms then bring in new executives with highly sought-after skills to run the company more efficiently.

“Any business, regardless of size, is only as effective and profitable as the sum of the value of both management and the employees working together to produce goods or services that can be sold into the marketplace for more money than the costs to produce them. The best employee workforce would be at certain risk of loss of their jobs if upper management is ineffective,” says Dougherty.

The full article at TheRightSphere is worth reading and committing to memory as the private equity sector comes under increasing attack in the months leading up to the election. In the meantime, do you think Romney’s Bain Capital experience supports or hinders his ability to be a good president? Add your comments below.

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What were the top stories of 2011 that affected private equity jobs and the industry in general?

AT&T’s $39 billion “Deal of the Year” for T-Mobile that never came to fruition may be one. The on-again, off-again saga came to symbolize the roller-coaster nature of dealmaking in 2011, according to the Wall Street Journal. The year started off strong with several multibillion-dollar deals as companies flush with cash snapped up strategic acquisitions. But then turmoil in the equity markets and uncertainty surrounding the Eurozone debt crisis put a damper on deal activity in the second half of the year.

Private equity deal volume for the first half of 2011 was $113 billion, up from $80 billion in the same time period last year, according to Reuters. That’s a 41 percent increase in deal volume, but it consisted mostly of lower-profile deals in the low- to mid-single digit billion dollar range. What’s more, private equity firms have encountered tougher competition from cash-rich strategic buyers, companies that are operating in the same sector as the prospective target.

2011 also saw private equity firms paying greater attention to Africa as the next hot region for investment. An increasing number of private equity firms are raising capital to invest in sub-Saharan Africa investment strategies and scouting for deal opportunities. Africa has huge potential. Estimates from both the World Bank and the International Monetary Fund hint that sub-Saharan Africa could achieve some of the highest growth rates in the world over the next 5 to 10 years.

This is in sharp contrast with Europe, where bankers have reported a slowdown in the flow of both private equity funds and deal-making as big investors wait to see how things will shake out with the Euro-zone debt crisis. Many private equity deals in Europe and the U.S. were highly leveraged, and current conditions are making it more difficult to raise this level of debt funding, reports Business Day.

And then at the very end of the year comes word that private equity giant, Carlyle Group, bucked the trend by turning in a stronger year of investments and exits, particularly in Europe. Carlyle invested EUR1.5 billion in Europe in 2011 in 12 transactions, compared with five investments made last year and just two in 2009, according to the Wall Street Journal. Carlyle made more deals, in smaller amounts, across three of their funds. This diversified approach serves as a model for the industry at a time when mega-buyouts are difficult because of a lack of debt financing and investing for growth offers the best chance of turning a profit.

What are your top picks for the private equity stories of 2011? Add your comments below.

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