PE Firms Wearing Several Hats

June 23, 2008

Deal sourcing. Fund raising. Preparing companies for exit. Buying champagne. Those were some of the key tasks for private equity firms during the not-so-long-ago boom years.

Fast forward to 2008, and the to-do list for a general partner is dramatically different. Deal sourcing is still at the top of the list because, after all, private equity firms raise money so they can invest it. But in a market where lending is tough to come by, competition from strategics has intensified and portfolio growth is tougher than ever (thanks in part to the economy), financial sponsors are working harder, and in different ways, to succeed.

At our conference last Wednesday on Post-Crunch M&A, the private equity firms on the opening panel swapped stories about functioning as their own syndication desk in order to secure financing. One GP said he personally called 38 banks to get financing for a sound company that was growing 60% a year. Another joked that when he picks up the phone nowadays, he answers “Syndication desk.”

Marketing is another task that has become more important as private equity firms look to differentiate themselves. Indeed, one of the big debates throughout the panel discussions was whether generalists could continue to flourish in a market where having sector-specific operational expertise appears to be growing in importance.

Of course, the list goes on: Driving growth from your portfolio. Communicating with LPs. Managing the debt of your portfolio companies. Coming up with alternative sources of deal financing. At least in today’s market, being a private equity firm is no easy gig.

Ultimately, whether you’re a generalist or specialist, whether you are global or local, one of the key differentiators in the current market will be your ability to wear these different hats. If there was ever a time when private equity firms are earning their carry, it’s now.

Adam Reinebach
adam.reinebach@sourcemedia.com