On May 20, 2007, China National Foreign Exchange Investment Corporation was confirmed to have a $3 billion stake in Blackstone Group, an American private equity company.
At this moment, the partners of another private equity giant KKR should help domestic enterprises to deepen their understanding of private equity companies.
After 30 years as CEO of a listed company and later United Commercial Media, I turned my attention to the private equity industry and became a partner of Kolberg Kravis Roberts(KKR).
I am already very familiar with private equity. As an investor in several funds and a member of two advisory committees, I have witnessed a high return on investment and learned how to make investment decisions and run enterprises. Obviously, the factors of their success are not only increasing debt and reducing company management expenses.
It is not surprising that the private equity industry has failed to prove its rationality and (in many examples of private enterprises) failed to provide legal minimum information. Here, they believe that investors will accept unbearable debt, cash flow shortage and low investment.
However, private equity experts will not do this. They know that this will definitely lead to disaster-destroying enterprise value and ultimately endangering the business model of private equity. American research shows that the initial public offering (IPO) performance of companies supported by private equity is better than the overall level.
So, what is the secret of the success of private equity experts? That is: first find an excellent enterprise, set up a talented management, and then implement a bold plan to invest in growth-oriented business and optimize business and financial performance.
Like listed companies, private companies must strive to cope with the impact of market competition and globalization. But maintaining privatization has some major advantages. Without the short-term view of quarterly financial report and some institutional investors' aversion to reasonable debt level and venture capital in growth business, private enterprises can adopt long-term strategy and accept the growth culture of enterprises. In addition, the corporate governance structure is based on ownership: all directors have great interests in the success of the enterprise, and the board of directors can focus on products, customers, personnel and performance.
Of course, not all executives like private equity. The latter has high expectations-it is in line with the return and will not allow poor performance. Ceos who are used to mastering similar imperial power and have the support of obedient subordinates will wake up from their dreams. A conceited CEO who seeks media attention, flattery from many people and absolute support from colleagues should remain the same. Chief executives should put aside their egos and be prepared to answer the difficult questions raised by private equity executives, who are usually less than half their age but have superb wisdom.
But if the private equity culture is encouraging and challenging, then it is also supported.
We constantly meet CEO and CFO, who either want to discuss the benefits of privatizing all or part of enterprise ownership, or want to jump ship to lead a non-listed company. If you are such a person, the first thing to do is to study the private equity investment manual, conduct in-depth due diligence and set strict standards.
Not all private equity firms do the same thing. Companies like KKR will invest in big companies and operate on a global scale. On the other hand, many companies have superb skills in investing in start-ups and helping small businesses grow. Other companies only invest in a certain country or region, or only invest in one or two industries in the economy, such as technology or infrastructure.
Pick out companies that have a deep understanding and rich experience in your industry. Many private equity firms are established on the basis of industries, and they recruit senior business leaders to help their portfolios form the right combination of investment and business skills.
When making a choice, you should make sure to spend some time talking with the industry team of private equity firms and ask them about their knowledge and experience. Please remember that you will work with them in the next five or six years, so you need to know with satisfaction that you can cooperate effectively with them professionally and personally. It is certainly worth asking some former CEOs who have worked in this private equity firm for several years.
Once you choose a private equity firm, you need to form a business plan. You should set challenging but realistic goals in order to maximize performance, make the company grow and focus on its core business. Please ensure that your proposed capital structure can ensure that you have the financial resources to realize the plan.
The last factor is the management equity plan. The plan should include all key managers, and each of them will be required to make meaningful investments within the scope of personal financial situation.