MANNION: Buyout transactions have received attention because of their size and the amount of leverage they entail. However, private equity covers the universe of venture investing, buyout investing and mezzanine investing, and includes both majority and minority investment holdings.
T&R: What are the benefits of private equity ownership, beyond a less onerous regulatory burden?
MANNION: The public stock market has a very short time horizon. Investors expect consistent, growing profits every quarter, and shortcomings can cause the stock price to fall dramatically. By contrast, private equity firms can take a longer view, allowing companies to make the investments they need to grow, even if that cuts into profits for a quarter or two. Private equity firms focus on growing the long-term value of a company. Hence, they tend to focus on cash flow, return on capital, margin expansion and less on aggressive accounting to increase value. Moreover, private equity owners provide not just capital but expertise, contacts and strategic guidance, as well.
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