Some of retail’s outstanding success stories have come from the private equity world, says BrightHouse chief executive Leo McKee.
Look through any issue of Retail Week and you will likely find that a sizeable proportion of the companies covered on its news pages are private equity-backed.
Some of retail’s outstanding success stories - along with one or two notable failures, it has to be said - have come from the private equity world.
Yet this is a sector that, often too readily, is unfairly maligned. The raft of current IPOs has once again thrown a spotlight onto the private equity firms that are selling. Commentators have observed that not all of the newly listed enterprises have achieved post-IPO share price increases.
Of course, the returns that private equity firms can reap from their investments are substantial. Moreover, some critics with long memories recall an earlier time of private equity exits, and refer to some businesses as having been left under-invested or over-burdened with debt.
Today the situation is dramatically different. Potential sellers recognise that, if they are going to the public markets, they must demonstrate a well-invested business with tangible growth prospects and an alignment of interest with prospective new shareholders.
“Private equity operating partners bring experience from other sectors and other countries.”
Leo McKee, BrightHouse
My view is that, as an ownership structure, private equity frequently proves beneficial not only for investors, but for management, colleagues, suppliers and customers.
In my experience, the most exciting feature of working with private equity professionals is experiencing the intellectual curiosity they unceasingly bring to the debate. Their proactive yet dispassionate probing into business issues or opportunities accentuates a sense of purpose throughout the enterprise.
Private equity operating partners bring experience from other sectors and other countries. They tend to avoid wasting time by excessively looking backwards. Their proclivity for looking forwards to identify incipient or emerging trends is helpful.
As you might expect, private equity professionals are assiduous on financial parameters and KPIs such as cash flow, return on investment, or return on sales. However, while their financial acuity is a given, their input in terms of emotional intelligence should not be underestimated.
Private equity colleagues fully appreciate that the culture of a business - its heart and soul - is a vital ingredient of its DNA and its potential for growth.
Similarly, they comprehend the importance of building and nurturing a positive reputation. Opportunistic cutting of corners for short-term gain is likely to prove futile if it means compromising the longer-term welfare of a business.
I sometimes think that ‘private’ equity is an entirely apt description. An enormous amount of private equity professionals’ work is undertaken outside the glare of the public markets and is seldom acknowledged.
However, I believe retail historians of the future will look back on this current era of turbulent change to judge that the combination of retailing and private equity has been a force for good.
- Leo McKee is chief executive of BrightHouse