The formulas, tricks and trade secrets of Private Equity
Boring Business Crisis
Boring businesses are great for private equiteers because they attract less attention, ergo less competitionduring sale, ergo lower earnings multiples. I wrote about this in a post titled Boring… but we love boring in private equity. However, there’s a problem with boring businesses… or a consideration, if you will.
A private equiteer’s boring business is also an employee’s boring business. And about the only time employees want to work for a boring business is when they need to be paid while doing other unpaid things (such as studying for school, writing a manuscript or using Facebook). But, this doesn’t nullify the boring business theory, it just poses considerations.
Anything to do with employees must be considered in a different light. Firstly, in a business where passion isn’t obvious (i.e. boring), you can’t expect people to work 80-hour weeks for 40-hour salaries. Secondly, you shouldn’t assume anywhere near as much loyalty. A glue packer will go elsewhere for a 20% pay increase, whereas an F1 engineer may stay even after a 50% pay cut. Lastly, you’ll be limited in terms of the talent pool; a regional GM of Apple won’t accept a CEO role at a glue factory for a 70% pay cut, but they may do so for an internet startup.
However, all is not lost. Focusing on productivity, efficiency and working with what’s available, has been a godsend to many a boring business. Oftentimes, you don’t need the big-name CEOs or loads of employee innovation. Sometimes, you just need a well-oiled machine that supports quick and easy bolt-on acquisitions (and as much as that may make us cringe, it really can create long-term value in boring industries).
P.S. I really don’t like using the word ‘boring’, but let’s not sugar-coat more than we have to.
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