Long-time General Electric CEO Jack Welch and wife Suzy, former editor of the Harvard Business Review, use their latest Fortune magazine column to rebut Vice President Joe Biden’s notions about the suitability of a former private equity executive as a potential president.
PE firms virtually never buy fast-growing companies with glistening profits. After all, such companies have access to other kinds of capital. And private equity is not in the business of polishing things up for a low-multiple return; it’s in the business of reinvention, with fireworks at the end.
During this kind of overhaul, do jobs get lost? Unfortunately, in the early stages they often do. But are companies saved? Again, yes. That’s the whole point of private equity. You’re trying to get a business from dying to thriving. In the process, some jobs may go, but with success down the road, many more will be created. And by preventing a company from going under, some jobs will certainly be saved.
Now let’s talk about the leadership traits that private equity’s most successful practitioners tend to exhibit. Every private equity acquisition begins with sophisticated negotiations between the PE firm, the corporate seller, and the employees of the business being sold. Usually several firms are vying for the business, but it’s not accurate to assume that price is the sole determinant of who wins. Just as critical many times is a PE firm’s ability to bring contentious stakeholders to a shared vision of the future. The result is that private equity managers are experienced in the art of getting tough deals done.
Next, because of their familiarity with turning around broken companies, private equity managers usually have a very clear understanding of what it takes to establish a workable balance sheet, how to develop a strategy, and how to execute that strategy.
