Those in business may not see many similarities between the financial practices of publicly traded companies and private equity businesses, but believe it or not, there are things that public companies can learn from the latter. Here are some important lessons to pay attention to.
1. Focus on Long-Term Strategy
Private-equity companies have the luxury of not having to laser in on the immediate state of the company with constant quarterly reports. This means they are able to come up with well thought out long-term plans that drive the direction of the business. Of course, public companies cannot ignore their quarterly reporting obligations but allowing some focus to fall on long-term strategy is still important, even for public companies. It's easy to get myopically focused on delivering results to shareholders, but keeping long-term strategy in mind will do that in the long run as well.
2. Enhance M&A Skills
Private equity firms are mergers & acquisition machines. They have a methodical way of finding the right firms to acquire and they don't just do M&As, they know when to divest as well. Public companies can take a cue from private firms by widening the types of transactions they may be open to. Refinancing, paying dividends or selling a part of a company are also options that private equity firms often keep in their usual wheelhouse.
3. Harness the Power of a Multi-Unit Business
Public companies with multiple units often spread their resources thin, effectively shooting themselves in the foot. Some of it comes down to difficult choices. Businesses always want to keep funds available to be able to make attractive offers and deals, but with planned dividends and other financial commitments, public companies may be at a disadvantage.
Private-equity companies often work on the principle of an investment thesis, a guiding principle that helps the company decide when investments are good for them or not. Using a similar theory can help public companies work on investing in resources that work well together that will not only add value to the company but not spread resources as thinly to work at appropriate budgetary levels. Make your multi-unit business work for you and not the other way around!