Skip to main content

Sarbox and Private Equity

Blackstone CEO Stephen A. Schwarzman pointed out how buy out firms are benefiting from Sarbanes Oxley regulations at the recent Wharton Private Equity and Venture Capital Conference. Knowledge@Wharton has an article based on his presentation at the event:
Public companies are now increasingly open to private equity advances. Sarbanes-Oxley and other regulatory and accounting rules are making some CEOs eager to work for private equity owners. Executives are also tired of the pressure to make quarterly numbers for the benefit of Wall Street analysts. "This is a transformation from 10 years ago when people in the buyout world were regarded as marginal, and becoming the CEO of a publicly traded company was an apogee moment."

Boards and executives are so concerned with Sarbanes-Oxley and compliance that they take very little risk in running their companies. Board members now come to meetings with their own lawyers, Schwarzman said, adding that accounting changes limiting write-offs for extraordinary events, such as plant closings or layoffs, prevent corporate executives from taking steps to enhance their business for fear that their earnings will take a major hit. "We have a bit of a broken system right now and the solution for these frustrated managers is to sell their businesses to private equity."


(Interestingly, Schwarzman also said at the event that the party time for buyout firms was probably nearing its end. He foresses the rise in interest rates and an overdue relaxation in Sarbox regulations tilting the field back in favor of strategic investors.)

The same article has David Brandon who took over as Domino's CEO post its buyout by a group of PE firms led by Bain Capital providing a slightly contrary view that life as a public company CEO was not too different from that under PE firms.
Brandon stressed the importance of working in partnership with private equity owners. "The ability to work with the sponsor company in a spirit of trust and fairness is what it's all about." Bain exhibited its faith in him when it allowed Brandon to make the call on when to go public, he said. "I believe management teams are the ones that have to pay back debt and take the company public. We are responsible. We can't be reluctant partners."

Brandon noted that he has now taken two companies public -- one before Enron and one after. "This time around was dramatically different." The process was harder and independent directors -- he serves on three other boards -- now have a "bunker mentality." New committee structures, Sarbanes-Oxley and whopping fees paid to auditors all make for more "moving parts" in running a public company. "It's changed how I allocate my time, but I don't think that, in and of itself, is going to make every company run back and become private."

Brandon recalled that after Domino's went public, he was often asked whether it was difficult to meet Wall Street's quarterly expectations. His response: "Have you ever looked at the expectations of those Bain guys? It wasn't like I was with a bunch of wimps who didn't care. They and their investors had thresholds. So whether I'm trying to ... satisfy and impress Bain, or show results for public investors, to me it's all kind of the same thing. It's all about performance."

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Popular posts from this blog

VC Interview: Shailendra Singh of Sequoia Capital India

In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry. Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back? Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms

ChrysCapital, Motilal Oswal PE & Sequoia named PE-VC Firms of the Decade

Press Release ChrysCapital, Motilal Oswal Private Equity and Sequoia Capital India have been named the top Private Equity & Venture Capital investors in India during the last decade, as part of Venture Intelligence’s APEX Awards. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer.  While ChrysCapital won the “Private Equity Investor of the Decade” award, Motilal Oswal Private Equity was feted as India’s “Growth Capital Investor of the Decade”. The Indian arm of the storied Silicon Valley VC firm, Sequoia Capital, was named the country’s “Venture Capital Investor of the Decade”. The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria were Exit Track Record, New Fund Raises & Fo

Ambit tops League Table for Transaction Advisors to Private Equity deals in 2019

Ambit Corporate Finance topped the Venture Intelligence League Table for Transaction Advisor to Private Equity Transactions for the year 2019. Ambit advised PE deals worth $2.4 Billion (across 4 qualifying transactions) during the period. Citi ($1.1 Billion across 2 deals) and  Avendus  ($969 million across 12 deals) took the second and third spot. Edelweiss Financial Services ($758 million across 9 deals) and  PwC  ($708 million across 15 deals) completed the top five in 2019.  The  Venture Intelligence League Tables , the first such initiative exclusively tracking transactions involving India-based companies, are based on value of PE and M&A transactions advised by Financial and Legal Advisory firms. Ambit Corporate Finance advised the $1.9 Billion buyout of Pipeline Infrastructure from Reliance Industries   by Brookfield Asset Management  and the IFC and I Squared Capital-backed   Cube Highways' acquisition of Delhi-Agra Toll Road from Reliance Infrastructu

Jio deals help PE investments climb 12% in H1'20 to $18.8 B

Press Release With Reliance Industries' communications unit Jio Platforms attracting 51% of the investment value, Private Equity-Venture Capital (PE-VC) investments in India rose 12% during the first 6 months of 2020 to $18.8 Billion (across 341 deals), shows data from  Venture Intelligence , a research service focused on private company financials, transactions and their valuations. Investments totaling over $9.5 Billion in Jio by a troop of global private equity firms, following social media giant Facebook's $5.7 Billion mid April investment in the company, helped overall PE-VC investments better the $16.8 Billion (across 503 transactions) invested during the same period in 2019. (Note: These figures include Venture Capital investments, but exclude PE investments in Real Estate).   Jio Platforms' $9.5 Billion Private Equity haul (excluding Facebook’s strategic investment) was led by Middle Eastern and American investors with KKR, Saudi Arabia's Public Invest

Inventus, Sixth Sense, Blume & Norwest win Apex'20 Venture Capital Awards

Inventus Capital Partners, Sixth Sense Ventures, Blume Ventures and Norwest Venture Partners were voted the top Venture Capital investors in India during 2019. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer. Other 2019 winners in the VC segment included  Axilor Ventures which was voted   the  Accelerator of the Year for the second year running, 3one4 Capital (VC Fund Raise of the Year) and Innoven Capital (Venture Debt firm of the Year). The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria are Exit Track Record, New Fund Raises & Follow-on Funding Rounds for Portfolio Companies).    " It is an honour to be recognised by entrepreneurs and investors as