Harvard Business School’s Josh Lerner provided some interesting academic insights this week in a WSJ piece titled “Private-Equity Deals Alter the Market.”
He wrote that private equity-backed IPOs may do well because, when private, company managers are free from quarterly earnings pressure and can focus on long-term goals. Executives have also been pressured, typically, to aggressively cut costs. I wonder whether the impact of a new strategic direction of boards comprised of their new PE owners can be a relief for managers. Taking aside the financial engineering part of the deal, senior management that stays at PE-backed companies might have a more flexible environment to manage the business in terms of financial reporting and budgets. I have to agree with Dr. Lerner in the sense that companies should do better with more focused managers that see growth and long term structural changes as part of their strategy.