UAE. For a third consecutive year, GrowthGate is proud to announce a collective work that has been prepared and published by Harvard Business School (HBS) faculty members (MBA – Class 2012), Prof. Josh Lerner of HBS a leading authority on Private Equity (PE); and members of our general manager’s team at Keystone.
GrowthGate has set the theme of the white paper (for a copy, please visit the link: http://www.growthgate.com/news_desc.aspx?idnews=97) which addresses a crucial topic for the PE industry globally and, in the MENA region, in particular.
The subject matter discussed relates to the importance of operational enhancements in portfolio companies as an integral part of the value creation process.
The resulting white paper has been the fruit of an assiduous labor by HBS’ students, and our team of professionals under the direct supervision of Prof. Lerner.
Pertinent parts of the research reveal that creating value in PE has always followed different paths:
1. ‘Financial Engineering’: principally administered through the use of excessive leverage and optimization of the capital structure. ‘Sweating’ the equity is a model that has been honed by large and small PE firms especially in the US and Europe at times when leverage was abundant and credit relatively cheap.
2. ‘Multiples Arbitrage’: almost exclusively dependent on market momentum. Buying private companies at competitive prices and floating them –within a relatively short holding period- onto the public markets at times of exuberance and high in trading multiples.
3. ‘Operational Enhancements’: this route requires from PE managers a degree of active involvement in portfolio companies beyond writing a check. By active involvement we understand an all-encompassing role stemming from assisting in recruiting senior executives, to selecting ERP packages and IT systems, to enhancing corporate governance, to implementing rules of financial discipline in anticipation of exits.
This last path, with which GrowthGate is chiefly concerned and has been a staunch advocate of its application, is the core subject of the white paper. Whilst other PE firms have sidelined the importance of operational value-creation, or adopted it under pressure or as a last-resort panacea when all other avenues failed, GrowthGate has made it the epicenter of its investment philosophy since inception.
This white paper is part of an annual series of publications that GrowthGate has committed to produce on the subject of PE in the MENA region. Our intent is to raise the level of awareness regarding both challenges and merits of such alternative investment tool, for the benefit of all LPs, GPs, academicians and professionals involved in the PE industry in the MENA region.