Michael Bach Atlanta | The term private equity firm is one that can be confusing for some people, but in this article we’ll look at exactly what constitutes what sometimes quite a controversial type of company. Firstly, we’ll break down what the different parts of the term actually mean. Equity is the entire value of a given asset, minus and associated liability.
The term ‘private equity’ means an asset that is not freely tradable on any given stock market – that is, ordinary members of the public or investors cannot buy shares in the asset. So the term private equity firm is the partner involved in the investment that controls how the investment is managed. There might be a wide range of partnerships involved in the group (who have pooled all their financial muscle together), but the private equity firm will be where all the major decisions are made.
The investment will have been highlighted as one that may well hold significant promise in the years ahead.
Michael Bach Atlanta | There a very wide range of different investment strategies used by private equity compnaies, such as sourcing funding – that is venture capital – for their investment plans. It is quite a common practice for the private equity firm to purchase undervalued firms or indeed companies that have been under appreciated. They will then attempt to improve them and sell them off for a profit. The process might be compared to ‘house flipping’ but transferred to a commercial setting.
One of the key things that they do is immediately remove the company from the stock market. Doing this permits them to make difficult or indeed controversial decisions without the need to deal with shareholder questions or concerns. They also will not need to release information that might be considered sensitive – and will not receive negativity from the public in general. The process of making the company private means that the private equity firm is only accountable to a small group of investors.
Michael Bach Atlanta | The management team that gets installed will often be quite brutal in terms of cutting out parts of the company that no longer make a profit, and will keep parts that do turn a profit. This process may well involve the loss of some jobs but in many cases a lot of the original employees will be kept on – as many of them will know the business and surrounding market place in great detail.
Which Are The Biggest Private Equity Firms?
Michael Bach Atlanta | A common question people ask are what are the biggest private equity firms? People unfamiliar with the industry often misconstrue what the term “biggest” means. It can refer to assets under management (or AUM), number of investments, deal activity, size of deals or the number of employees at the firm.
Michael Bach Atlanta | I would say that the most common measure of the largest or biggest buyout firms is the assets under management or AUM. One measure of the size of a buyout firm is by the amount of private equity direct-investment capital raised by each firm over the past five years. By this measure we can find a list of the biggest buyout firms via Private Equity International magazine. P.E.I. 50 is a ranking of the largest PE firms using this measurement, here are the top ten of those fifty firms:
1. The Carlyle Group
2. Goldman Sachs Principal Investment Area
4. Kohlberg Kravis Roberts
5. CVC Capital Partners
6. Apollo Management
7. Bain Capital
9. Apax Partners
10. The Blackstone Group
Michael Bach Atlanta | This is not the complete picture of these firms however. For example, the size of a buyout firm does not mean that it is the best performing firm. Investors or professionals may be misled by the term “biggest” to interpret it to mean more than just the assets under management or capital that the firm has on hand to directly invest. You should also consider the performance of the firm, how many employees the firm has, its relative influence or control of a certain niche like energy companies or manufacturing firms, etc., and other indicators of the firm compared to other firms.
New York Private Equity Firms
Michael Bach Atlanta | In order to raise and generate more capital, obtaining a list of prospective and potential PE or buyout firms is necessary. Once have the needed information on the firms such as location and contact details along with the operating business details and assets under management (AUM) you are able to more efficiently and accurately focus your time and attention by targeting the top candidates. However, how do you obtain a list or Private Equity directory for firms in New York?
Michael Bach Atlanta | New York-based buyout firms are often particularly hard to contact because they receive so many proposals and queries on a daily basis. Often, New York firms will start screening emails and phone calls so it’s best to present yourself clearly and identify exactly how you can benefit their firm whatever your purpose may be. If you sound like you are just trying to sell them something you won’t make it past a low-level employee or a vigilant secretary. I believe that the best approach is to contact the firm (using the strategy for locating PE firms that I will outline in the next section) in person if at all possible. The New York location makes this possible for many professionals who often have to visit the Big Apple anyways.
Michael Bach Atlanta | These firms are also hard to contact because they deal with big amounts of money and are some of the largest buyout firms out there. So you should really understand how large the AUM of these firms is before you try contacting them. Consider the following figures before trying to work with these firms, ask yourself, am I big enough and capable of working with such a large buyout firm? If the answer is no, set your sights lower.
Goldman Sachs Principal Investment Area = 49.05 billion
Kohlberg Kravis Roberts = 39.67 billion
Apollo Management = 32.82 billion
Blackstone Group = 23.3 billion
Warburg Pincus = 23 billion
Cerberus Capital Management = 14.9 billion
AIG Investments = 14.22 billion
Fortress Investment Group = 14 billion
Clayton Dubilier & Rice = 11.38 billion
Lehman Brothers Private Equity = 10.22 billion
J.C. Flowers & Co. = 7 billion
New Mountain Capital = 6.69 billion
MatlinPatterson = 6.67 billion
W.L. Ross & Co. = 6.65 billion
Welsh Carson Anderson & Stowe = 5.88 billion
Michael Bach Atlanta | Now, here is a general strategy for locating New York-based private equity firms. Begin your search by optimizing your keyword string within a search engine such as Google.com, Bing.com or any other search engine provider. Once you search for those terms you are then able to sift through the results and ascertain the depth of the results provided. Since New York City is such a large financial and investment center, there are numerous listings for PE or buyout firms.
The next step to take,is to decide what it is you are searching for and what criteria you have for the results you are beginning to find. Such as, assets under management (AUM) and another important aspect, is what the results have been for their last 5 years or so of operation. Depending on your search criteria this will affect the amount of qualifying results.
Michael Bach Atlanta | Often financial magazines, newspapers and blogs will post aggregated data on the top PE firms in New York and many other cities. While the contact information and depth of details are often lacking in these details provided by various media resources, the current operating details are often current and fresh. The benefit of these articles is that they will have already completed in depth research of the top New York PE firms, and they present those findings in an easily found and read format.
Michael Bach Atlanta is a private equity professional that started his profession 16 years ago. He started Scirage and was the Chief Executive Officer of Drezden Capital Advisors. Michael Bach Atlanta attended North Carolina A&T State University in Greensboro and is a renowned veteran in the financial business, with a powerful career, client driven ethics and clear business vision and leadership.