In a world where perfection is expected and excellence is tolerated, this search for mediocrity may seem quite counter intuitive..
One of our professors made us think on the merit of this advice. Many many individuals and companies are making millions by following this strategy of chasing medocrity and not excellence. How could this be done...
The new mantra for very many PE firms now is Invest-Turnaround-Harvest. They don't look for excellent companies for investing, instead they look out for poorly managed companies and use basic management principles and common sense to turnaround these companies to average performing companies and sell them at a much higher valuation.
Take the case of some individuals. A new breed of high performing operating executives are being hired as turnaround experts. These guys are not liquidation managers, they instead repair and build back poorly managed companies. Michael Capellas, who has made serial job hopping a career, is a case in point.
As head of Compaq Computer, Capellas led a turnaround and a sale to Hewlett-Packard before leaving the company in 2002. Capellas then took over MCI while the company was in bankruptcy and eventually sold it to Verizon. He has collected large paychecks along with way and is estimated to have taken home a total of more than $57 million in change-in-control payouts from Compaq, Hewlett-Packard and MCI. He was an adviser for Silver Lake Partners, a buyout firm that specializes in technology and from there on he moved as head of Serena Software, one of Silver Lake's portfolio companies. Now, Capellas is taking over as chief of First Data Corp., the payment-processing giant acquired by the private equity firm KKR in April for $25.6 billion. This will be his fourth technology company in eight years. With an ownership stake in First Data, he could take home millions more.
Convinced? If not, let time heal you..
1 comment:
The strategy of buying poorly performing companies and turning them around seems too good to be true. The critical question is: what do these investors look out for in the target, that helps them decide that yes, the damn thing can be turned around...?
I thought over it for a few minutes and came up with -
1. The company should have some natural advantage (like locational advantage, easy access to resources, etc) OR
2. The company's business should be centred around an idea or product that has great potential
I tried asking this question in class but got no convincing answer. Enlighten me.
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