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Reasons for high profitability of European Private equity funds (Industry: Private
Equity)
The reasons for inefficiency of these public companies may be due to neglect, not
reaching performance targets or other weaknesses. Often disorganized units of
the companies are not easy to value because they are integrated into the public
company. This can make it hard for public companies to sell these unsuccessful
parts of the business and therefore is an opportunity for private equity houses.
However, recently the approach of private equity companies has shifted towards
acquiring entire public companies in search of greater growth and profit. This is
a riskier approach as costs can be higher for example when Toys R us went
private in 2005, the entire top management staff had to be replaced ("The
Strategic Secret of Private Equity", 2017).
A big reason for the high profitability of private equity houses in the UK is due to
personal financial incentives. Senior management of public companies often do
not give enough attention to units of the companies that are performing below
par because there is no personal incentive to do so. However, if these units are
taken private, fund managers are able to charge a fee on the cash linked to the
amount of cash returned to fund investors. Therefore managers are incentivized
to create a higher return on investment for investors in order to receive a higher
value in the performance fee (which is typically 20%). Managers also receive a
2% management fee.
make the acquired company as lean as possible and must minimize its
liabilities.
However, private equity companies are faced with the economic threat of an
Increase in interest rates that create a threat making it harder to finance large
public buyouts. This may be a key driver for change should interest rates rise.
In conclusion, I have shown how private equity firms are strategically placed to
take advantage of weak public companies and make a profit. This is incentivized
financially at a personal level and at a corporate level because private companies
are subject to less regulation. Private companies also do not face the social
pressure from shareholders who are likely risking real money. Private equity
companies can also maneuver easier through tax restraints that public
companies are subject to.
Oliver Tonge Los Mejores Strategic management exam
4 What do you think are Key Success Factors for a company in:
Critical success factors are product features that are highly valued by a set of
customers and where the organization must excel in order to outperform
competitors (Johnson, & Scholes, 1997). In order to identify what are the
critical success factors, I have presumed that the mission in the delivered
pizza industry would be to be a profitable business with steady growth. In
order to do this in the delivered pizza industry, critical factors would include,
pizza being fresh, hot, delivered on time and hygienically. The reliability of
the company is also important because customers will demand consistency
when ordering food.
Key success factors are less important than critical factors but still contribute
to the success of the industry. These include the ability of the marketing team
to research the market and to respond to changes in market demand as
quickly as possible. This would allow the company to increase sales, and
increase market share. The ability of the company to retain customers is also
important because this will dictate whether the company is sustainable or
not.
Bibliography:
Oliver Tonge Los Mejores Strategic management exam
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PREQIN
In-text: (Preqin, 2017)
Your Bibliography: Preqin. (2017). Prequin. Retrieved 2 June 2017, from
https://www.preqin.com/docs/samples/2017-Preqin-Global-Private_Equity-and-Venture-Capital-Report-
Sample-Pages.pdf
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