Private equity strengthens American companies with capabilities, clarity, culture and capital
WASHINGTON, DC, September 5, 2007 — Three iconic American companies — quick-service legend Burger King, financial software innovator SunGard and automotive parts pioneer AutoZone — provide compelling case studies on how long-term private equity investment has significantly strengthened — and even turned around — scores of major U.S. businesses, according to a new white paper released today by the Private Equity Council.
The report, “Driving Growth: How Private Equity Investments Strengthen American Companies,” details the new tools and techniques that have led to a “quiet revolution” in the way that private equity investment firms strengthen American companies and make them more competitive in the global marketplace. The view of private equity as financial engineering is outdated. Today, private equity investment firms create value and drive productivity in companies they acquire by focusing on four key areas: capabilities, clarity, culture and capital, the paper concludes.
The white paper details three case studies — Burger King, SunGard and AutoZone — to illustrate the manner in which private equity investment firms drive growth, value and productivity at the companies they acquire by:
• Upgrading capabilities — changing management, bringing in outside experts and delivering the PE firm’s own in-house skills.
• Creating clarity — carving out a neglected business from a larger conglomerate or specifying the key metrics that matter most to performance.
• Establishing a performance culture — aligning incentives and trying compensation to performance.
• Providing capital — assuming risks that public markets or large corporate conglomerates would not or providing capital on more patient terms that available elsewhere.
“Private equity investment firms today rely on their unique experience, talent, energy and entrepreneurial skills to significantly improve fundamental business processes and operations,” said Private Equity Council President Douglas Lowenstein. ‘Their focus on value and performance has become a potent force that has strengthened hundreds of companies, delivered superior returns to pension funds and other investors and driven economy-wide improvements in corporate productivity.”
The Burger King story exemplifies the benefits of this singular focus. At the time of private equity acquisition in December 2002, Burger King faced significant challenges. In the previous fiscal year, the company had lost $37 million and closed more restaurants than it had opened. On top of that, one in four franchises was nearly bankrupt. By the time that Florida-based Burger King went public in 2006, the company’s income had risen to a $27 million profit, average sales per store had grown by 33 percent and the number of franchisees in distress had dropped by 2,700 to less than 100.
The white paper also tells the success stories of SunGard, a Pennsylvania-based leader in developing and marketing business software that has significantly increased its revenue, employment and research and development efforts under private equity ownership — the company now processes almost 70 percent of all NASDAQ trades; and AutoZone, which grew under private equity stewardship from the a small unit of a wholesale grocery business with 1,000 employees and 175 stores in 1984 to become the nation’s leading auto parts retailer with 27,000 employees and 1,423 stores in 1996, when private equity investors exited the company.
The new white paper is available on the Private Equity Council’s web site at www.privateequitycouncil.org. In addition to the “Driving Growth” report, the PEC web site offers access to a wide range of information about the contributions that private equity investment firms make to the national and global economies. The site includes fact sheets, position papers, press releases, backgrounders and links to other private equity-related web sites.
About The Private Equity Council
The Private Equity Council, based in Washington DC, is an advocacy, communications and research organization that develops, analyzes and distributes information about the domestic and international private equity industry. Its members are: Apax Partners; Apollo Global Management LLC; Bain Capital; The Blackstone Group; The Carlyle Group; Hellman & Friedman LLC; Kohlberg Kravis Roberts & Co.; Providence Equity Partners; Silver Lake Partners; THL Partners and TPG Capital (formerly Texas Pacific Group).
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