The skills required of private equity deal doers are similar, according to many veteran investors who presented their formulas for success at the recent 2005 Private Equity Deal Professionals Forum held in New York. Certainly brains, hard work and Excel spreadsheet skills matter, but keen social judgment – being nice, even – is a key ingredient to career success in this long-term asset class.
The Deal Professionals event, hosted by sister publications Private Equity International and Private Equity Manager, was organised as a forum for younger deal professionals to hear from veterans about best practices in sourcing, vetting, negotiating, adding value to and exiting deals. To be sure, the panelists spoke of capital structures, legalities and market analysis, all of which add to success. But social skills can make or break a career, they agreed.
Deal veterans suggested – pleaded, even – that the younger investment professionals be considerate and chummy with their lenders, investment bankers and lawyers who, when times get tough, become crucial allies. A portfolio company that enters an unexpected market downturn may need more financial flexibility, and a lender who feels he or she has been used and abused will not provide this. Legal advice that is initially dismissed as nitpicky can end up saving a GP from years of legal trouble. So pay attention and say “Thank you.”
In a buyside, sellside relationship, it is sometimes easy for a private equity pro to be haughty with investment bankers. Never be this way, said Tyler Wolfram, a partner at Oak Hill Capital Partners. Any management team brought to visit the office by an investment banker is given royal treatment by the Oak Hill crew, said Wolfram, even if the firm has no interest in the deal. “We want that banker to look good in front of his clients and bring more deals back to us,” he said.
Being popular with management is key. Stuart Hawley, a managing director at Stamford, Connecticut private equity firm Saugatuck Capital, warned against negotiating too hard with the management teams of potential portfolio companies. Beat them up on every point, said Hawley, and you may have a resentful bunch managing your investment post-closing. David Shapiro, a managing principal of New York turnaround specialist KPS Special Situations, said his firm had never been sued over the replacement of a management team because it has never picked a battle with outgoing management over employment agreements. Short of fraud, such disputes are never worth it, said Shapiro.
On the event’s closing panel, Thompson Dean, a 16-year veteran of DLJ Merchant Banking and current CEO of Avista Capital Partners, said successful deal pros know how to enter rooms, to instill confidence in management teams, to be tough but fair, to clinch deals. In hiring young talent, said Dean, “I’d rather take the best athlete over the best brain any day.”
An athlete, presumably, who doesn’t smell.