PE Investments, Value Creation, and Social Consequences

Speakers: Jose-Miguel Gaspar, Professor – ESSEC; Vincent Gombault, Managing Director – Axa Private Equity; Jean-Louis Grevet, Founding and Managing Partner – Perceva Capital

Do we understand private equity well? At times, some cliches from the 1980s blur our understanding. The common perception of highly-leveraged buyouts with subsequent asset-stripping does not reflect current practices, as Jose-Miguel from ESSEC shows.

As LBOs boards meet more often, have more outside directors, the performance is more likely to increase. Private equity firms provide substantial help in terms of professionalization of management and reporting systems.

The median holding time being on average of 42 months, compared with that of institutional investors of public firms (27 months), we can see that the landscape of LBOs has changed.

Private equity, with about 13,000 funds managing about $3 Trillion USD, with 75% of funds going to LBOs, exhibit “persistence in performance”, needs some change in public perception.

Practitioners such as Vincent Gombault from Axa and Jean-Louis Grevet from Perceval brought valuable insights on such industry changes in Private Equity.

Perceval, who specializes in turnarounds, has three time horizons of value creation in his work: fix the balance sheet as it invests, fix operational issues in the medium time horizon, and start investing in the long term to develop sales and deploy.

Is this hard to negotiate with creditors while formulating a medium and long-term strategy, while balancing stakeholders such as employees and local authorities? Yes. But this may be an inspiring recipe for future value-creating business.

Eventually, value creation may stem from the ability to juggle with multiple time horizons. As different stakeholders have conflicting demands, the ability to use integrative thinking at the leadership level becomes more critical.

This has practical implications on management education, as decision sciences are becoming intertwined with negotiation classes and inter-temporal strategy formulation.

Perhaps, even, we may need to find a balance between maximizing realism in describing the context of decision making such as with systems thinking and its contemporary developments; and the need for efficient, more narrowly scoped number-driven decisions. This is also why this council asks the difficult questions, but the most pressing ones. #councilbusinessandsociety

~written by Donoxti Baylon

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