Value creation tutorial: What private equity has to teach public companies

Vinay Couto, Ashok Divakaran, Harry Hawkes, Dr. Deniz Caglar
August 23, 2011

Executive summary

Companies are in business to create value for their stakeholders, and that pursuit occupies countless hours in boardrooms and executive suites around the world. Certain companies are singularly adept at adapting their business to create and sustain value over time, but most are not. It’s here that the example of top-tier private equity (PE) firms can be illuminating and useful.

The best of these firms are able to create economic value over and over again, and they do so not only through a tight regimen of cost reduction but also by creating real and sustainable operating and productivity improvements at their portfolio companies.

It’s true that private equity firms enjoy a number of natural advantages over public companies when it comes to building efficient, high-growth businesses, including a built-in burning platform for change (that is, an exit within 10 years), tightly aligned ownership and compensation models, and fewer institutional loyalties and competing distractions. Still, there are many private equity lessons that do apply or can be adapted to help public companies develop the same sort of focused, time-sensitive, and action-oriented mind-set. We explore seven in this report.


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