Comparing Private Equity and Corporate Approaches to M&A

This chapter explores the profound differences in philosophy and objectives between the private equity (PE) and corporate approach to M&A. This is shown to be hugely influential in management actions. Where corporates buy with a view to retaining and integrating a business, private equity operates a buy–improve–sell process over a 3-to-5-year time frame. These divergent strategies are crucial to the nature of the M&A process and also require differing qualities in a CEO—a subject that is here established and fortified with related research in the field. The chapter proceeds to address how fear of missing out on a purchase can drive irrational purchasing decisions. From this, it deduces that experience is an important factor in honing elements of the process and that attracting new money often hinges on recent performance. The differences in philosophy and time frames between the PE and corporate rationales create vastly differing approaches to pricing, due diligence, timing and disposals. These areas are explored in turn before considering the clarity and depth of the improvement plan associated with PE, which replaces the strategic buyers’ integration operation.