Private equity companies buy other businesses, make them “healthy” or “better” and then sell them for profit or do the IPO. What’s it the goal that every private equity has? Make profit for itself and its investors. That is the only goal they have. What is NOT on their goal list? Making a great product or service, creating a thriving and inclusive working environment with exceptional awesome and cohesive work culture, giving a fuck for the employees. It is only and solely selling the company for profit or going IPO. It is about doing so quickly, preferably in 3-7 years tops. Maximize the return of the investment, then move on to the next business.
Some private equity companies are very good at what they do. Say they manage to score 3 or 4 out of 5 times. Others do poorly 1 out of 5 times. Some deliver on very lucrative returns – 100 to 300% (even more) is not unheard of. Others don’t. At the end of the day what one needs to remember is that if his company is acquired by a PE – that company, the essence of it (as defined by its culture and people dynamics) seizes to exist. The latter can happen in one or few months time, in an year or immediately.
The playbook
How does a PE pays for the acquired company? In many ways but for simplicity let’s assume there are two – an all cash deal or leveraged buyout. Leveraged buyout has nuances but usually this means one thing – 30% of the whole sum is paid by cash by the PE, the rest is a bank loan the acquired company gets so it can pay off all of its current owners/investors that want to exit. That loan must be repaid and the private equity must show results quickly (speed is of the essence). How is this done? Through the so called restructuring which means cost cuts, lay offs, wage and hiring freeze. Anywhere from 20 to 35% of the workforce should count itself out. Sometimes it could be 50% or more. It all depends. Doesn’t matter how loyal, good and awesome one is, cost cuts rarely discriminate. Then, to save more – say goodbye to getting new equipment on a regular basis, say sayonara to “performance” bonuses, office perks (or ANY perks whatsoever). Depending on which private equity acquires you – things could be relatively civilized or not really. In either case – the loan must be paid, the company must be sold with profit, costs must be cut.
Next on the menu is the so called “co-investment” option. That’s a “great” thing PEs love to do – like offer you, as an employee, the “incredible opportunity” to off-load some of their investment risk by allow you to become a “co-investor” in the company. Of course that investment requires a minimum sum to participate (which is normal), your money will be locked for 5-7 years or until IPO or other conditions (say selling the company to another). Somewhere the fine print can say that if you get fired or laid-off – you loose it all or you can keep the investment or a buy back needs to happen at fixed prices (which won’t be in your favour). Doesn’t matter what it says, it matters that co-investment is usually great for the private equity and not so much for you. Why? Because it helps their books, makes the company look super healthy (who would invest in sinking ship?) – look how engaged the workforce is! To be fair, depending on how much you are willing to (or allowed to) invest you can even get some crumbs. The usual mistake employees make in this case is not reading what they are signing and not understanding that any co-investment by design serves the private equity first, not the employee.
In-between there’s the leadership change. Sometimes sudden, others – slow. That serves two purposes – first in case you had approachable, easy going and easy to speak higher and middle management – now you don’t, second it enables the private equity to play the carrot and stick game better – get those numbers and you get the carrot, don’t – you get the stick! Very motivational and it works great. Few things are as faceless and disengaged as interim C*Os and VPs. Whatever they can’t accomplish, rest assured, the so called middle management will. If a mistake is made? No worries, the middle management will get it first. Expect the latter to be mostly packed up with highly incompetent people who either don’t know shit or don’t care. Their job is not to know anything really – it is to demand and press you to work more, harder and preferably 24/7 because hey, we are “family” (except we are not) and look your zombie-peers are doing it and they are happy about it! Dare to disagree or push back and you’ll hear a short but mindless speech about “we are in the same ship” and other similar crap that used to mean something but now it means “We are in the same ship and you are on your way out unless…”
Of course all that does not happen every time, but say – most of the time. In one way or another. If your company gets acquired by private equity rest assured that:
- Fun times are over, now it is only work, Work, WORK
- You’d be required (not just expected) to work way more or at least look like you are (looking like that is sometimes much more important)
- In 3 to 7 years (tops) the leftovers will be sold to another
- If you have loved your job, colleagues, work environment, work-life balance & etc – now you won’t
- You have two choices – quit or STFU and work
Sure, things are not that awful except that they are, they are just not always that awful but somewhat most of the time. Would you stay to find out? I would, but not without having plan B and C right away. No waiting. Why? Because as I said – the terms of the deal have changed, they have been altered in a way which makes the employees not individuals but a faceless workforce and any business that does that is not worth working for – ever. Unless of course you don’t really work for it but have say silently quit (whatever that means). Then its fine. Except it isn’t because you are wasting time, playing zero sum game, cheating yourself from anything meaningful while thinking it is the pathetic “leadership” you are cheating…
Ever heard about that interim CEO that turned the fortunes of his 46th company, in an year, for the better? No? Because there are none. That’s not their job. Their job is to keep the ship afloat so it can safely arrive to the IPO shipyard or to the next buyer. One goal, one purpose. You as an employee – you are just a passenger, with a name attached, some number, expense column and all that represented on an Excel sheet. Thinking otherwise is at your own expense, so better don’t. Brace yourself and make a choice – stay or leave, regardless – do what the PE is doing – having a single goal defined by one thing alone – your very own interest. Ah, but that sounds cynical and awful? Indeed it is. Then don’t do it. Up to you to decide.