Private equity tends to get a bad rap in the plastics and packaging industry. There is a perception that a private equity firm doesn't have a company's best interests in mind - just its own financial concerns. In a poll for the week of April 30 on Plastics News' Web site, more than half of those who responded thought PE's focus was too short-term.
There is, of course, another side to the story. As a managing director at Mason Wells, a midmarket private equity firm in Milwaukee, I'm troubled by this negative general perception of PE. The megadeals and New York's Blackstone Group's initial public offering dominate the headlines, but they divert attention from the many successes of private equity in helping midmarket companies in the plastics industry. On the whole, private equity is out there creating value.
Consider Berry Plastics Corp. The company is under its fourth private-equity ownership, getting bigger and better with each ownership transition. Meanwhile, Evansville, Ind.-based Berry has kept virtually the same management team throughout. The company is a driving force in the industry - owing much of its success to the capital and resources private equity provided.
An example a little closer to home, from the Mason Wells portfolio, is thermoformer Creative Forming Inc. of Ripon, Wis. We initially acquired the family-owned company in the mid-1980s, aggressively invested in thermoforming capacity and backward integrated to add extrusion capabilities. During our seven years of ownership, Creative Forming consistently built the top and bottom line. We sold the company to a strategic buyer. But it later became an orphan under a public company, and its value deteriorated. So we bought Creative Forming back and again increased investment. The company has since returned to double-digit growth.
Private equity can bring capital and other resources that help owners looking to grow their businesses. Here are some of the key benefits family-owned and closely held companies find when working with a midmarket private equity firm:
* Spark business growth. A good private equity firm will bring efficient systems into a company, narrow the focus, identify new markets and integrate value-added processes. Whether it's in the form of capital to bolster systems or a fresh perspective on the marketplace, private equity's involvement can breathe new life into a mature company.
* Gain a strategic planning partner. Many private equity firms provide strategic planning and resources to improve and build the business. In addition to capital, a private equity firm may have a network of other resources - such as a board of directors with experience in the plastics industry - to assist management teams in achieving strategic objectives.
* Plan for long-term growth. Private equity allows for steadier, longer-term growth. Publicly traded companies are held to quarterly goals, whereas private equity allows flexibility to make strategic decisions that can pay off in the long run.
* Compete globally. Some midmarket, family-owned businesses may not be equipped to compete globally. But the resources and know-how of a private equity firm can help them enter new markets and serve new customers worldwide.
Private equity can also benefit business owners on a more personal level. Examples include preserving a family legacy, maintaining corporate independence, solving succession planning problems, creating liquidity, helping in estate planning and minimizing financial risk. There is also less competitive risk inherent in working and sharing information with a private equity firm vs. a competitor.
To compete in today's changing marketplace, sometimes you have to look to nontraditional sources for ways to grow your company. If you have negative preconceptions about private equity, you may be missing excellent opportunities for your company. The strategic and financial strength private equity brings may be just the boost you need to reach both your business and personal goals.
Greg Myers is managing director at Mason Wells, a Milwaukee-based private equity firm.