Why Private Equity Never Loses

Take a look into how this $11 trillion industry fights to keep its self alive.

Photo by Austin Distel on Unsplash

Before understanding the ingenious tactics deployed by this behemoth machine, it helps to first understand how the industry works:

Background — All About Private Equity

Private Equity (PE) firms make money by investing in companies that have the potential for growth and value creation, with the goal of realizing a return on their investment through a sale or other exit strategy.

The firm will typically take an active role in managing the company, working closely with its management team to identify opportunities for growth and value creation. They may also make operational improvements to the company, such as implementing new processes or streamlining operations.

Let’s see what that might look like:

• In 2013, Bain Capital acquired Apex Tool Group, a leading manufacturer of hand and power tools, for $1.6 billion.
• One of the key initiatives that Bain Capital implemented was to optimize Apex Tool Group’s supply chain. The company had a complex global supply chain with a large number of suppliers, which made it difficult to manage inventory and resulted in inefficiencies. Bain Capital worked with the management team to consolidate suppliers and improve logistics, resulting in cost savings and improved delivery times.
• Bain Capital also invested in new product development, helping Apex Tool Group to introduce innovative new products to the market. For example, the company launched a line of cordless power tools under the CRAFTSMAN brand, which quickly became a best-seller.
• Additionally, Bain Capital facilitated the sale of Apex Tool Group’s joint venture with Danaher Corporation, which generated $400 million in proceeds for the company.

Once the company has achieved its growth objectives and is ready for an exit, the PE firm will look to sell the company or take it public through an initial public offering (IPO). This is where the PE firm realizes its return on investment.

The return on investment can come from a number of sources, such as the sale of the company for a higher price than the initial investment, or through…