Page 159 - (DK) The Business Book

MAKING MONEY WORK 157

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 decisions and strategy. In the long
department-store chain JC Penney term, there are two critical questions
was given a facelift and a new, more about private equity: does it produce
upmarket strategy. A sharp a better profit performance? And is
downturn in sales forced a quick it better for the long-term success of
rethink, including firing the the business, taking into account
recently hired CEO. Short-term innovation, staff commitment, and
underperformance is unacceptable customer satisfaction?
to a public company, and can even In 2013, a combined study by
attract the attention of private-equity three UK universities found that a
investors seeking new acquisitions. company’s performance falls after Alec Gores
The second strength of the being subject to a private-equity
private-equity model is said to be buyout, based on profits and Perhaps the richest private-
equity businessman in the
the focus it provides. The boards of employment levels. The research
world, Alec Gores’s personal
publicly traded companies often showed that four years after a
fortune was estimated at
direct a diverse range of businesses. private-equity purchase, revenue
$1.9 billion in 2013. Gores
For example, in 2012, the Sumitomo per employee rose from $190,000 to
was born in Israel in 1953 to
Corporation of Japan sold a 50 $252,000, while in a control group it
a Greek father and Lebanese
percent stake in its Jupiter Shopping increased from $190,000 to $295,000. mother. He emigrated to the
Channel subsidiary to US private- However, other studies have US in 1968, where he attended
equity group Bain Capital. This suggested the opposite—that high school in Michigan.
effectively separated Jupiter from private equity boosts profits—so the After earning a degree
Sumitomo, ensuring that the research is inconclusive. in computer studies from
Jupiter directors could focus on just It might seem that when “private Western Michigan University,
one area of business. This enabled equity” is used as a term to describe he founded a computer retail
them to play a more hands-on role in debt-fueled growth, years of success business (Executive Business
can be followed by spectacular Systems) selling computers
from his basement in 1978.
losses. However, the majority of
Jupiter Shopping Channel is Japan’s Within seven years, he
most popular television shopping companies making private-equity employed more than 200
company. Now 50 percent privately purchases are institutional people. Gores sold the company
owned, it benefits from an increased investors, who want to invest large for $2 million at the age of 33
focus on call-center efficiency. sums of money over long periods. ■
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.