Bangkok Post

Top PE Firms Mine Their Sweet Spots to Stay Ahead

Industry-leading PE firms know the true sources of their repeatable success are encoded in their DNA.

By Hugh MacArthur, Suvir Varma and Sharad Apte

Published on September 08, 2016
min read


This article originally appeared on Bangkok Post. In private equity (PE), as in most high stakes business pursuits, sticking to what you're good at is a surefire way to achieve real success. But in an industry in transition from its early buccaneering days, the thrill of pursuing attractive novelties can often result in a scattershot approach to finding new deals. Industry-leading PE firms know the true sources of their repeatable success are encoded in their DNA—the combination of unique qualities deeply ingrained over time in the firms' experience, ambition, talent and expertise. Many firms stray from their investment sweet spot because they fail to fully define what it is they know how to do best. Finding, and sticking to, the firm's investment sweet spot is critical because it provides a roadmap, showing deal teams the types of investments they should pursue, and gives limited partners (LPs) compelling reasons to back them. It sharpens the deal-vetting process by highlighting the critical issues to be tested during due diligence for every deal. It brings the firm's expertise to bear in the bidding process by enabling the firm to make its best case with target-company management that, as owners, they would be the business's best stewards. It increases the effectiveness of the firm's investment committee by enabling the general partners to recognise patterns that foretell success across deals. And it guides the firm's multi-year investments to hire the right talent and build the right capabilities to ensure that success will continue to build upon success. Bain's analysis found that deals that fall within the firm's sweet spot consistently and significantly outperform those opportunistic deals that stray from it. On average, the multiple earned on all sweet-spot deals was a handsome 2.2 times invested capital versus 1.3 times invested capital on the deals that deviated from the firm's sweet spot. Read the full article at Bangkok Post. The article was prepared by the authors at Bain & Co as part of its Global Private Equity Report 2016.

This article originally appeared on Bangkok Post.

In private equity (PE), as in most high stakes business pursuits, sticking to what you're good at is a surefire way to achieve real success. But in an industry in transition from its early buccaneering days, the thrill of pursuing attractive novelties can often result in a scattershot approach to finding new deals.

Industry-leading PE firms know the true sources of their repeatable success are encoded in their DNA—the combination of unique qualities deeply ingrained over time in the firms' experience, ambition, talent and expertise. Many firms stray from their investment sweet spot because they fail to fully define what it is they know how to do best.

Finding, and sticking to, the firm's investment sweet spot is critical because it provides a roadmap, showing deal teams the types of investments they should pursue, and gives limited partners (LPs) compelling reasons to back them. It sharpens the deal-vetting process by highlighting the critical issues to be tested during due diligence for every deal. It brings the firm's expertise to bear in the bidding process by enabling the firm to make its best case with target-company management that, as owners, they would be the business's best stewards. It increases the effectiveness of the firm's investment committee by enabling the general partners to recognise patterns that foretell success across deals. And it guides the firm's multi-year investments to hire the right talent and build the right capabilities to ensure that success will continue to build upon success.

Bain's analysis found that deals that fall within the firm's sweet spot consistently and significantly outperform those opportunistic deals that stray from it. On average, the multiple earned on all sweet-spot deals was a handsome 2.2 times invested capital versus 1.3 times invested capital on the deals that deviated from the firm's sweet spot.

Read the full article at Bangkok Post.

The article was prepared by the authors at Bain & Co as part of its Global Private Equity Report 2016.