After the sacking of Rome, it still took barbarians several generations to become properly civilised. Private equity funds have made a similar transition from besiegers to potential partners rather more swiftly, even in the eyes of the highest profile corporate sellers.
Take GE’s latest disposal of its advanced materials business to Apollo Management. To smooth the sale, GE will use a large chunk of the $3.8bn gross proceeds to buy out the unit’s two joint venture partners, and hold on to a 10 per cent stake in the new company. Retaining an equity stake when selling out can certainly make sense. It secures a portion of any windfall private equity buyers might reap from flipping the asset and it can help reassure the business’s employees.
In addition, when it comes to a serial asset reshuffler like GE, such partnerships can foster good relations ahead of future deals. For private equity buyers awash with cash, having even the slightest edge in securing investment opportunities is obviously attractive – especially if those targets already have solid management in place. Equally, knowing potential buyers well can make things easier for corporate sellers, for example in speeding up due diligence.
The only trouble may be that companies such as GE move out of an area for a reason. In recent years it has increasingly tried to narrow its scope, ideally to businesses that promise both high growth and high returns – and synergies beyond the application of its managerial acumen. This partly reflects investor pressures that come from a public listing. But it also says a lot about the limited opportunities for anyone else to improve performance. That may especially apply to buy-out houses, many of whose early wealth-making techniques, from leverage to incentivising management, have become all to common even in civilised company.