Tuesday, July 1, 2008

"Buying to sell" giving greater return than "Buying to keep"

The Strategic Secret of Private Equity.
By: Barber, Felix, Goold, Michael,
Harvard Business Review,
Sep 2007, Vol. 85, Issue 9

Private equity firms have shown, the strategy "Buying to sell" is ideally suited when, in order to realize a onetime, short- to medium-term value-creation opportunity, buyers must take outright ownership and control. Such an opportunity most often arises when a business hasn't been aggressively managed and so is underperforming. It can also be found with businesses that are undervalued because their potential isn't readily apparent. In those cases, once the changes necessary to achieve the uplift in value have been made -- usually over a period of two to six years -- it makes sense for the owner to sell the business and move on to new opportunities.

The authors are directors of the Ashridge Strategic Management Centre, in London. Felix Barber (felix.barber@ashridge.org.uk) is a coauthor of "The Surprising Economics of a 'People Business'" (HBR June 2005). Michael Goold (michael.goold@ashridge.org.uk) is a coauthor of "Do You Have a Well-Designed Organization?" (HBR March 2002).

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