PRIMER AND MASTERCLASS

ANY­ONE IN­TER­ESTED IN PRI­VATE EQ­UITY WILL LEARN A LOT FROM WOLSE­LEY’S AN­DREW PE­TER­ING, BUT CON­SID­ER­ABLY MORE FROM CHAMP CHAIR­MAN BILL FER­RIS.

The Australian - The Deal - - Extra -

BILL FER­RIS, the doyen of Aus­tralia’s pri­vate eq­uity in­dus­try and ex­ec­u­tive chair­man of CHAMP, con­cludes his re­cent book In­side Pri­vate Eq­uity by say­ing the lo­cal in­dus­try will not only sur­vive, but thrive, with its abil­ity to lever­age the prox­im­ity of Asia a cru­cial fac­tor. Given he has more than 40 years in the game and a vast store of in­side knowl­edge, there are prob­a­bly few peo­ple who would ar­gue the toss.

Fer­ris’s book is rich in hard­earned­wis­do­mand will suit both the gen­eral reader and busi­ness peo­ple keen to learn about an in­dus­try that had $30mil­lion un­der­man­age­ment in Aus­tralia in 1987 and is now well north of $10 bil­lion.

Wolse­ley Pri­vate Eq­uity man­ag­ing di­rec­tor An­drew Pe­ter­ing has also turned author in an at­tempt to de­mys­tify the sec­tor. His In the Driver’s Seat, dis­trib­uted by the firm, is more a be­gin­ner’s guide to pri­vate eq­uity for cor­po­rate man­agers and ex­ec­u­tives and an ef­fort to sell the mer­its of the game. It doesn’t try to match Fer­ris’s book in depth, breadth or tales of glamorous sail­ing trips, but as a ba­sic in­tro­duc­tion to how the game works it is use­ful and highly read­able.

Pri­vate eq­uity ex­ists, so there must be de­mand for it. Yet it has its naysay­ers. It may fix up busi­nesses, but does it cre­ate any­thing new? The in­dus­try claims the com­pa­nies it backs rep­re­sent just 0.01 per cent of GDP, but 10 per cent of all re­search and de­vel­op­ment. But the ob­scene prof­its on some deals raise con­cerns that ei­ther the buyer or the seller, or both, have been ripped off.

Jim Collins’ Built to Last is an old favourite among pub­lic com­pany bosses, who see them­selves as value cre­ators and builders. The pri­vate eq­uity folk do too, but they are es­sen­tially traders. In the end, the pub­lic and pri­vate eq­uity mar­kets happily co-ex­ist, each with its own pur­pose.

Pri­vate eq­uity nar­rows its fo­cus to widen its prof­its and lives and dies by the rigour of its man­age­rial dis­ci­pline. A pub­lic com­pany boss has to sat­isfy mul­ti­ple stake­hold­ers, many of whom are con­flict­ing, where­a­spri­vate eq­ui­ty­man­agers can ig­nore a lot of them.

Fer­ris says the start­ing point is to work out a deal’s core propo­si­tion. Why is it bet­ter than other op­por­tu­ni­ties? Who can help you ex­e­cute? What are the risks and the re­wards? Sim­ple re­ally, and he looks at suc­cesses and fail­ures.

Pe­ter­ing’s aim is more to ex­plain how things work on the as­sump­tion that you want to ac­cess pri­vate eq­uity, but don’t cur­rently have much of a clue. He uses in­ter­views with the likes of Dun & Brad­street’s Chris­tine Chris­tian to sell the “em­pow­er­ment” of­fered by pri­vate eq­uity. His tar­get au­di­ence is the com­pany man­ager or en­tre­pre­neur who wants to get to square one. Hence many of his tips may seem blind­ingly ob­vi­ous. They in­clude: choose your pri­vate eq­uity part­ner well be­cause it works like a mar­riage; ditto your in­ter­nal man­age­ment; “don’t carry bag­gage into a Test match”; don’t bor­row too much; don’t over­pay; be re­al­is­tic about fi­nan­cial pro­jec­tions; be fe­ro­cious about ex­e­cut­ing the plan; and don’t pro­cras­ti­nate on the exit.

The de­tail is in­for­ma­tive, ex­plain­ing nitty-gritty stuff such as fee struc­tures, fi­nan­cial en­gi­neer­ing, re­mu­ner­a­tion and tim­ing your exit. The keys to suc­cess are a vi­able busi­ness plan, pos­i­tive cash­flow, a clean in­vest­ment ve­hi­cle, a back­able man­age­ment tea­mand a clear exit strat­egy. The lat­ter de­pends on the strate­gic value of your com­pany, state of the pub­lic stock­mar­ket, num­ber of trade buy­ers and growth prospects.

Th­ese books are aimed at dif­fer­ent read­ers. Pe­ter­ing de­liv­ers a use­ful ba­sic guide. While Fer­ris also has good ad­vice on tap­ping into pri­vate eq­uity, he of­fers much­more: his­tor­i­cal con­text loaded with in­sight on howdeals are done and his per­cep­tions of the char­ac­ters be­hind them. He doesn’t try to sell the mer­its of the in­dus­try, as he as­sumes the reader needs no con­vinc­ing.

CHAMP’s Bill Fer­ris has spent

more than four decades in the pri­vate eq­uity game.

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