Customer Reviews

Lessons from Private Equity Any Company Can Use (Memo to the CEO)

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When I ordered this book, I didn't realize how small and short it would be, so I was a bit caught off guard when it arrived. However, it was densely written and to the point, and chock full of good advice for executives looking to groom their company for a sale in 3-5 years at a multiple of its current value.

The authors state up front that there are 6 key principles or steps in maximizing the value of your company and proceed to do a short chapter on each of these principles, with 1 or 2 anecdotes to illustrate their points. Some of their ideas are probably easier said than done, such as defining the strategy or reshuffling the Board of Directors to be more useful. The overall message of relentless focus, goal-orientation and accountability, high rewards for the management teams who succeed all are spot on.

The only downside to the book, in my view, is that it is very focused on large companies rather than how to take those principles downward to a smaller scale. Saving $3 billion in G&A costs is impressive but not very relevant to most prospective readers of the book. Some examples from mid-market companies would have made it more relatable. Some parts are also quite technical, when they get into managing debt-equity ratios, structures of the Board, etc. so I don't think the book will really be relevant to middle management types either.

Overall I would recommend it for anyone in an executive position at a mid- to large-scale enterprise who is looking to turnaround a business and flip it, or who is anticipating getting private equity investments and wants to better understand in advance what the PE guys are probably thinking.

Two business experts from Bain & Company believe that successful practices adopted by PE players can be applied to different industries around the world. After having abundant consulting experience of working with PE players, they maintain that there are at least six deceptively simple rules in which PE players set a concrete and inescapable benchmark for corporate performance.

Like other non-PE players, the key objective of PE players is to keep generating attractive returns for their investments within a specified time. Nowadays Gadiesh and MacArthur conclude that top quartile PE players adopt six rules to build values in their investments instead of relying mainly on asset stripping and debt loading exercises. The six rules encompass every pre- and post-acquisition step from due diligence, business renovation, and performance management to talent retention, capital allocation, and corporate culture. At first blush, senior executives from non-PE players might argue that ownership and business models of PE players are not homogeneous so that their business practices cannot be fully applicable to non-PE players. However, the six rules, particularly performance acceleration, working capital management, and talent management, are all that non-PE players should learn from if they intends to build value for their investments.

This book is not too lengthy but covers many successful practices done by well-known PE players such as Bain Capital and Charles Bank Capital Partners, Centre Partners, Newbridge Capital, CVC Asia Pacific, Crown Castle, and Cerberus. It is highly recommended for senior executives who are not too familiar with business practices of PE players and for those who are getting lost in the clouds or being handcuffed by tradition-bound and antiquated systems while spearheading operational performance improvement for their firms.

I was disappointed by the book. It mostly restates the key perceptions about how PE firms create value, and praises CEOs of multinationals who have adopted these principles. Could not help walking away with the feeling of consultants having written a book to sell their services to CEOs who want to do the same.

Lessons from Private Equity Any Company Can Use is a smart, concise guide to restructuring and employing profit-maximizing practices applicable to any firm. The book is written in a simple language that does not require prior knowledge of private equity but uses the ideas that private equity firms use to extract value and promote efficiency.

Rather than a comprehensive book on private equity, Lessons from Private Equity is a memo to CEOs describing the basics of private equity and how the fundamental goals of private equity firms can be used to improve any company. The case studies used in this book illustrate the point that utilizing private equity methods for managing a firm has led many public companies to success. The Sealy Corporation and Nestlé are the most prominent examples referred to throughout the text as examples and indeed both these firms have demonstrated great business management skills in producing profits to public investors (Nestlé more so than Sealy in recent years).

The authors provide a step-by-step process for success:

1. Define the Full Potential: Use strategic due diligence to set a target "increased equity value."
2. Develop the Blueprint: Develop a plan for achieving that goal.
3. Accelerate Performance: Putting the plan into action by matching the blueprint to your company and overcoming obstacles to success.
4. Harness the Talent: Hiring the individuals that can make your company's blueprint a reality by either looking inside the company or seeking outside talent.
5. Make Equity Sweat: This is a fundamental aspect of private equity firms managing a company, relying on "managing working capital aggressively, disciplining capital expenditures, and working the balance sheet hard."
6. Foster a Results-Oriented Mind-Set: Take the private equity disciplines learned in the book and implement them permanently into your firm's culture and periodically reevaluate your company to ensure it is maintaining the formula for success.

The strength of Lessons from Private Equity lies primarily in its brevity (it is just over 100 pages long) and its straight-forward approach. The ideas put forward are not counter-intuitive, they rely on basic strategic due diligence to identify underperforming areas and people to establish a more effecient firm. This book is ideal for executives and young professionals hoping to reach the higher rungs of a company, but also applies to entrepreneurs managing small companies. Lessons from Private Equity is accurately priced low because of its short page-length but I found a great deal of value in this little book.

The authors of Lessons from Private Equity are Orit Gadiesh and Hugh MacArthur are both experts in improving management from the large private equity firm Bain & Company. Gadiesh serves as the chairman at Bain and has been listed on both Forbes' "The Hundred Most Powerful Women in the World" and the "Most Powerful Women in Business". MacArthur heads Bain's Global Private Equity business and advises private equity firms on strategic due diligence on targeted firms and improving performance of those companies.

This is one of the titles in the "Memo to the CEO" series published by Harvard Business Press, each less than 200 pages in length and superbly produced. In fact, none of them is a "memo" nor were any of them written only for CEOs. In this volume, Orit Gadiesh and Hugh MacArthur explain how to make any business more valuable while acknowledging that the lessons to be learned from the private equity (PE) industry are not rigorously and consistently applied by businesses around the world. Why? "We see two main reasons for this: first, the application of these lessons drives real change in many businesses, and, for better or worse, change brings risks, both real and imagined...Second, many leaders apply the lessons that we will discuss, but incompletely. It is easier to do "fine" than to the "best" a company can do. We call this [begin italics] satisfactory underperformance [end italics] - a pervasive disease in business that is the direct target of this memo."

Gadiesh and MacArthur are eminently well-qualified to identify and then examine the tools and techniques used by the best PE firms. She is chairman of Bain & Company, the first management consulting firm to develop a global PE practice that is now the largest of its kind. MacArthur heads it. Moreover, even a cursory review of their respective careers suggests a scope and depth of real-world business experience in all areas of operations with global companies in a variety of industries. They speak with unique authority when asserting that the smartest PE investors "have realized that the only way to reliably increase the value of their portfolios is to maximize the operating value of the underlying businesses in them. For this reason, the best PE firms have shifted many of the resources that they once poured into financial engineering to ward creating value - and they are doing it in a way that is more systematic, focused, and aggressive than the practices in most companies."

It should be noted that the lessons they discuss and the recommendations they provide with those lessons can be of substantial value to decision-makers in any organization, whatever its size and nature may be. For example, "to improve profits and stock price [or value if the company is privately owned], you need to make strategic choices with a clear picture of the full potential of your company in mind." Define that potential by answering, with rigor and accuracy, this question: "How high is up?" Next, develop as "blueprint" or "road map" for getting to that full-potential destination. That is, the "who, what, when, where, and how" while establishing and then sustaining strategy, resources, execution, and measurement in proper alignment. The next objective is to accelerate performance at all levels and in all areas of the given enterprise while harnessing the talent (i.e. hiring, "growing," and retaining only those who possess the talent, skills, experience, and character needed) because "the best-laid plans go nowhere without the right people to implement them."

Gadiesh and MacArthur also urge their reader "embrace LBO economics" which in part means getting comfortable with leverage. For
example, "eliminating unproductive or underperforming capital, often by cutting pieces out of the business. It also may mean finding new ways to convert traditionally fixed assets into sources of financing." A number of excellent books have been published in recent years in which their authors offer excellent advice on how an organization can become more agile. (Two of the best are Fast Strategy: How Strategic Agility Will Help You Stay Ahead of the Game and Corporate Agility: A Revolutionary New Model for Competing in a Flat World co-authored by Charles Grantham, Jim Ware, and Cory Williamson.) Meanwhile, the best PE firms "work their magic" by helping C-level executives in their portfolio companies foster a results-oriented mindset that ensures results-driven performance.

By devoting a separate chapter to each of these six core principles, Gadiesh and MacArthur are able examine all of them in much greater depth. "We use the best private equity practices as the benchmark, but in reality [lessons to be learned from them] have been around for a long time. They just haven't been codified as formally by most businesses. Whatever the ownership of your company, our advice is to look at how the best PE people operate, and to use their techniques to compete against them and everyone else."

None of the lessons to be learned from private equity that Gadiesh and MacArthur have identified is a head-snapper, nor do they make any such claim. Ultimately," winners" and "losers" will be determined by the results their people produce. However, it is at least as important (if not more important) for decision-makers to understand what not to do as it is to understand what must be done and how to do that. In 1963, Peter Drucker spoke to this point: "There is surely nothing quite so useless as doing with great efficiency what should not be done at all."

Frankly, I am surprised that so much valuable information and (especially) advice can be presented, and presented so well, within a narrative only 122 pages in length. Orit Gadiesh and Hugh MacArthur are to be commended on their brilliant achievement.

Those who share my high regard for this book are urged to check out the aforementioned Fast Strategy and Corporate Agility as well as Roger Martin's The Opposable Mind, Gary Hamel's The Future of Management, Henry Chesbrough's Open Business Models, Richard Ogle's Smart World, Frans Johansson's The Medici Effect, James Kilts's Doing What Matters, Dean Spitzer's Transforming Performance Measurement, and Enterprise Architecture As Strategy co-authored by Jeanne W. Ross, Peter Weill, and David Robertson.

Recommended by an MBA buddy. My company is going through a third round of PE ownership, and this book confirms how these guys run things. "Making equity sweat" will be the mantra of all business. If your company doesn't follow this pattern now, it soon will, or get swept out with the tide.

This is a great little book about how the best PE firms enhance value at portfolio companies. It offers specific steps at a high level that any CEO can implement in his own firm.
Each point is articulated clearly, followed by one or two relevant examples.
A couple of the examples would benefit from more detail, but this "book" is really just a longish essay, and as a result, is brief and to-the-point (which I prefer vs authors who write the same thing over and over again to try to fill a book).
There's a little bit of "selling" by Bain & Co suggesting that companies might want to hire consultants to help implement the strategies, but it's not too much.
Overall, an interesting, helpful little book. I enjoyed it enough to buy a couple more copies for executive friends.

CEOs of large public and private companies may not think they have much in common with private equity (PE) investors. After all, CEOs are beholden to their shareholders and boards. Their organizations have multiple layers of management and a conservative mindset that can make change ponderous. Meanwhile, PE investors thrive in a more free-wheeling environment, sizing up their targets and sometimes taking considerable risks in hopes of delivering exceptional financial results. Authors Orit Gadiesh and Hugh MacArthur believe that traditional companies can apply six successful principles from the PE firms' playbook. While adopting the PE philosophy isn't always easy, as the authors are quick to point out, the benefits can be significant. If you feel your company is not living up to its potential, then getAbstract believes this book points out some options you might want to consider. However, you might find that the idea inspires you more than the advice the authors bequeath.

I read this over the weekend, easy read and a MUST read for everyone in business