From the Northeastern Section of the ACS, focusing on career management and development

August 2007
« Jul   Sep »
Private equity firms
Filed under: Position Searching, Job Offer (Situations), Mature professionals
Posted by: site admin @ 10:01 am

In a previous post, we spoke about
private equity firms.  It was in the
context of a lay-off and different
strategies these firms seem to take
and what we, the employees and
potential employees, should be aware
of.  Other entries have mentioned Private
Equity firms in passing. 

They are becoming more of a presence in
the employment scenario, so it might be
appropriate to offer a glimpse of what
they are to people who generally will not
be exposed to these details.

The information is taken from an excellent
Oakmark Funds editorial in the 3rd
Quarter Report, July 2007 W. Nygren.

“Private equity. The term is everywhere.
You can’t go to a financial website,
read the business section of a
newspaper,…without hearing about
private equity.

In the most general sense, private
equity is simply ownership interest in
a company whose stock does not
trade publicly…. 

In fact the after-tax cost of capital
is now lower for private equity firms
than it is for many cash-rich
companies. A private equity firm
can offer a safe harbor with
- no Sarbanes-Oxley,
- no public disclosure of executive
compensation, and
- no pressure from investors to meet
quarterly earnings targets.

Financially, a leveraged private
company also enjoys a big reduction
in income tax payments (which is
because interest to debt holders is
deductible, while payments to
shareholders aren’t), and a
leverage-enhanced equity return
that is about twice the return of a
typical stock.

Private equity firms no longer
need to devise operational
strategies that increase earnings
and grow value, but rather, most
of today’s transactions succeed
purely on financial arbitrage.”

[Dan’s note:  But… some of these firms
are out to look for short term,
very high return on their investments
and do hold back on capital
improvements, do lay off people
to “balance the books” and do
extract profits from cutting to the

Nygren’s final comments are worth

“At Oakmark, we’re buying public
equity interests in what we believe
are some of the greatest businesses
in the world,…

Once an acquisition proposal is made,
our focus is as much on the process
as it is on the price. We believe that
today’s acquisition market is so
competitive that, almost by definition,
an open process will result in a fair

An open process with a level playing
field is the best insurance we can get
that we are obtaining the highest”..[value]

So, the take home message for us
is to look for honest, “open communication”
of goals, objectives, directions and
in the interviewing process
and if you happen to be working at
a private equity firm.

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