The Business Book

(Joyce) #1


Jupiter Shopping Channel is Japan’s
most popular television shopping
company. Now 50 percent privately
owned, it benefits from an increased
focus on call-center efficiency.

See also: Beating the odds at start-up 20–21 ■ Who bears the risk? 138–45 ■
Leverage and excess risk 150–51 ■ Balancing long- versus short-termism 190–91


example, in 2012, the US
department-store chain JC Penney
was given a facelift and a new, more
upmarket strategy. A sharp
downturn in sales forced a quick
rethink, including firing the
recently hired CEO. Short-term
underperformance is unacceptable
to a public company, and can even
attract the attention of private-equity
investors seeking new acquisitions.
The second strength of the
private-equity model is said to be
the focus it provides. The boards of
publicly traded companies often
direct a diverse range of businesses.
For example, in 2012, the Sumitomo
Corporation of Japan sold a 50
percent stake in its Jupiter Shopping
Channel subsidiary to US private-
equity group Bain Capital. This
effectively separated Jupiter from
Sumitomo, ensuring that the
Jupiter directors could focus on just
one area of business. This enabled
them to play a more hands-on role in

decisions and strategy. In the long
term, there are two critical questions
about private equity: does it produce
a better profit performance? And is
it better for the long-term success of
the business, taking into account
innovation, staff commitment, and
customer satisfaction?
In 2013, a combined study by
three UK universities found that a
company’s performance falls after
being subject to a private-equity
buyout, based on profits and
employment levels. The research
showed that four years after a
private-equity purchase, revenue
per employee rose from $190,000 to
$252,000, while in a control group it
increased from $190,000 to $295,000.
However, other studies have
suggested the opposite—that
private equity boosts profits—so the
research is inconclusive.
It might seem that when “private
equity” is used as a term to describe
debt-fueled growth, years of success
can be followed by spectacular
losses. However, the majority of
companies making private-equity
purchases are institutional
investors, who want to invest large
sums of money over long periods. ■

Alec Gores

Perhaps the richest private-
equity businessman in the
world, Alec Gores’s personal
fortune was estimated at
$1.9 billion in 2013. Gores
was born in Israel in 1953 to
a Greek father and Lebanese
mother. He emigrated to the
US in 1968, where he attended
high school in Michigan.
After earning a degree
in computer studies from
Western Michigan University,
he founded a computer retail
business (Executive Business
Systems) selling computers
from his basement in 1978.
Within seven years, he
employed more than 200
people. Gores sold the company
for $2 million at the age of 33
and used the capital to start
the Gores Group in 1987.
The Gores Group private-
equity fund specialized in
acquiring and operating
undervalued and under-
performing noncore businesses
from major corporations, and
turning them into profitable
concerns. These included
loss-making divisions from
large companies, including
Mattel and Hewlett-Packard.
Since its founding, the
company has acquired
more than 80 businesses.
Free download pdf