Henry R. Kravis Talks Private Equity

15 Dec

Private Equity

 

In an interview with CNBC, Henry R. Kravis took a few moments to discuss private equity and the impact it has had on corporate America. According to Kravis, private equity forces companies to stay accountable, teaches managers how to think like owners, provides long-term capital, and allows companies to be more efficiently run.

 

When companies are backed by private equity corporations, they are held accountable for successes and failures because stakeholders are invested in the company. Companies under the wing of private equity are expected to succeed and grow, and generally do so quickly.

 

This accelerated growth is due in part to the long-term capital that is provided by private equity corporations. Companies can use this capital to expand their businesses and improve their practices. When they have a stable financial backing, companies can better make strategic decisions and decide how to move forward in a way that will be most beneficial to the company.

 

When a company is backed by private equity, Henry R. Kravis says managers must learn to think like owners. Instead of simply giving a loan, private equity corporation also expect their portfolio companies to be efficient with their money. Everyone has a stake in the company, and therefore it must be managed strategically and smartly.

 

Kravis uses the example that one company they had backed initially had a program that they said would cost $150 million. When the board wanted them to come up with 10% of the money (their stake), they went back to the drawing board and came back with a more efficient, cheaper way to operate the program. Because both the corporation and the managers have an alignment of interests, managers learn how to cut costs more than they would otherwise.

 

All in all, what Henry R. Kravis communicates is that private equity has played a big part in making corporate America smarter in its operations. It helps accelerate growth and nurtures potential so that it isn’t lost for lack of funding or efficiency. Companies can, with the backing of private equity, be more innovative, strategic, and successful than they might have otherwise been.

 

 

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