Timing is everything in business. Platinum Equity, a private equity firm with an excellent track record of buying distressed companies, applying its operational expertise to the ailing businesses, and then turning them around, finds the timing is again right to make deals.
As Mary Ann Sigler, CFO of the Beverly Hills, Calif.-based company, points out, few distressed businesses looked to sell their underperforming assets during the downturn. With the economy in an upswing, more of these businesses are now on the block. Not that Platinum Equity waited on the sidelines during the worst of the recession. It acquired 14 companies in 2009 while other PE firms twiddled their thumbs. Still, that's nothing compared to its appetite this past December, when it feasted on four companies in a single month. T&R asked Sigler to elaborate on the recent uptick in deals.
T&R: What a difference a year makes, yes?
Sigler: We're seeing some of the same opportunities we saw during the recession, just more of them. There are a lot of distressed companies in Chapter 7 and Chapter 11. During the recession, not many people were willing to let go of their businesses. You don't want to be the one who sold in the trough--you don't want to become famous for that unless you're totally up against the wall. Since a lot of what we buy are carve-outs and parts of other businesses, a company that wants to get rid of underperforming assets wants to be sure they don't sell in the trough since buyers have the ability to second-guess you.
T&R: So they hold on until prospects brighten?
Sigler: Seems to be the case. Given what we all went through in 2008 and 2009, companies that held onto their distressed assets didn't have the capital to turn them around--the operations just didn't get fixed. So there are a lot of opportunities where, in just a short period of time, with our operational expertise, we can go in and turn these things around. To be able to make money in this business, you have to take something and appreciably change it--morph it into something else. This has resonated with sellers.
T&R: When you say 'operational expertise,' you're referring to putting new people into these companies, right?
Sigler: If you rely on the people who were there--maybe they were good people stuck in a bad structure or they were just not the right people for that situation--how are you going to make a difference? How are you going to get a return on your money? Investors are looking for how you can really distinguish the organization--not just go in and buy it and operate it a little better. That won't do. You have to have a plan on Day One for the restructuring--even before that.
T&R: How do you make sure you don't overpay, particularly as deal-making heats up?
Sigler: We have models, methodologies and processes that tell us this is the right transaction at the right price, or we will walk away. There are plenty of deals out there now looking for investors, but if we don't think we can turn the business around, we will put down our pencil. We've done lots of deals, but only the ones that promise a yield.
To learn more about Sigler's work at Platinum Equity, read her profile in 2010 CFOs to Watch: Ready for Opportunity.
Read about other CFOs to Watch in 2011.