A question my partners and I at Ideasphere have been getting more frequently by operating executives at our client companies is whether an acquisition by a Private Equity Group (PEG) is a good or a bad thing for them. Based on our experience with many transactions over the last ten years, our answer is, it depends on who the buyer is. Just like assessing Venture Capital (VC) firms who invest in some of our startup clients, the answer depends on the type of money the PEG represents: Green, Gray, or Red. Depending on that, an acquisition can be good, great, or a really bad thing….Green, Gray, or Red Money? Please allow me to elaborate.
· Green Money is just that: A financial buyer who recognizes an opportunity to buy an asset that will grow over time and generate returns with little need for direct involvement by the buyer.
· Gray Money is green money plus brains: A financial buyer who recognizes an opportunity to increase the value of an asset by bringing intellectual capital (their business network and access to management talent) to the table, along with real capital (their money).
· Red Money is like getting in bed with the Devil; No matter what you do, you’ll wake up with horns. Red Money is a financial buyer who recognizes the value of an asset can be increased through non-value-adding financial and operational engineering that consciously cripples the asset in the long term, but generates a short term pop in value that can be exploited for a great return.
