The formulas, tricks and trade secrets of Private Equity

Private Equity Returns

Sample Chapter

It takes tenacity and stolid determination to push a private equity deal all the way to completion. From originating the deal to negotiating terms, it’s thankless work (Ha! 20% carry is thanks enough).

But as a private equity pro, you sell yourself as a master of value creation, not a master of closing deals. So, when a deal closes, you really haven’t even begun to prove yourself. It may feel like the end of the journey, but it’s only just the beginning.

People will make up their minds about you in these first few weeks. They’ll be watching and analyzing your every thought, every word and every action. They’ll use this to decide whether they’ll work for you or against you. It may sound unjust of them, but you probably close deals by promising the world. So now it’s showtime; it’s time to deliver.

Here are a few other thoughts to consider once you make a new investment selection:

  • There may be lingering bad blood from the negotiation phase, so make sure you reconnect with everyone who’s still involved in the business; change the focus from the transaction to the future
  • Make sure you act on the findings from due diligence; it wasn’t just for show, it was commissioned to better understand the business and better understand the next steps to strengthen the business
  • Communicate with management and visit them often to show your support; again, you need to transcend the adversarial relationship that developed during deal negotiations
  • Minimise the annoyance of implementing new systems by making changes fast; this applies especially to new financial reporting processes, which often require a lot of effort upfront
  • Offer your services and your firm’s services over and over and over again, and act quickly on any promises; you will gain respect and credibility by showing you don’t mind rolling up your sleeves
  • Focus on tasks that businesses often neglect, for example, contacting acquisition targets, renegotiating bank terms, gathering intelligence from competitors, collecting customer feedback, etc.
  • Most of all, keep acutely aware of the culture, people and politics and adjust quickly and ask for explicit feedback; you need the support of the people, without it you’re doomed from the outset

As you can imagine, your performance early on sets the stage. It feeds back to others and especially onto other entrepreneurs who may be looking for investors now or far into the future. Think of that extra effort now as what it takes to future proof your firm and ensure a good return on investment selection.

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