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13 quotes from 2 episodes on Private Equity Funcast, each with a timestamped link to the source.
Ryan Milligan details how private equity investors hold an information advantage over executives regarding compensation terms and market data. Operating partners bridge this gap by bringing mystery shopping research directly to post-close sales calls.
Board directors and deal team members who dictate solutions risk creating blind obedience from management teams.
“So whether you're the chairman or the deal team member, when you say do something, somebody's going to do it…”
From Why Year-One PE Value Creation Requires In-Person Board Bravery
Cross-checking equity illustration grids with external investment bankers and private equity firms exposes hidden sponsor assumptions.
“Once you have that information then call your investment banking friends, call other executives, call other private equity firms and bounce it off them for a sanity check.”
Private equity sponsors who refuse to share detailed distribution waterfalls intentionally hide downside risks. Executives facing hesitation from deal teams bypass analysts to speak directly with senior partners.
“I just think it's about somebody hesitating to share information. If somebody I've heard people have been told, 'We don't share the waterfall.' But that's I don't know. I'd say, 'Well, then let me talk to your boss in that situation.'”
“On my side of the table, I know the answers to all these questions…”
Stock options force executives to write personal checks to exercise shares and start the capital gains clock. Profits interests in an LLC structure offer tax advantages without requiring out-of-pocket capital.
“So wherever possible we use what are called profits interests…”
From Why Profits Interests Beat Stock Options in PE Equity Pools
“Those are the most tax advantaged situations for a manager. Getting profits interest as part of an LLC structure is probably what you want.”
From Why Profits Interests Beat Stock Options in PE Equity Pools
“A lot of times with stock options to take possession of the stock option to start what you call start the clock on capital gains treatment people actually have to write a check.”
From Why Profits Interests Beat Stock Options in PE Equity Pools
Tense negotiations emerge when sponsors wait until the end of a sale process to reveal that the buying firm requires managers to roll 30% of their proceeds into the new deal.
“On the sale where this also gets tense is private equity firm is selling and they they wait too long toward the end to say, 'Oh, by the way, another private equity firm is buying and they need you to roll 30%,'”
Deal diligence generates valuable competitive intelligence, including mystery shopping data and specific competitor talk tracks. Operating partners test these external findings during live post-close prospect conversations.
“So there's probably a lot of context that we now have on alternatives. Like what are the other players out in the market? What are they saying and doing? We've probably done some mystery shopping. We may even know verbatim what do they say, and what do they say about us?”
From Why PE Operating Partners Must Join 20 Live Sales Calls Post-Close
“You're going to go see the rubber meet the road for the first time on what's really happening in those conversations and what people are asking about…”
From Why PE Operating Partners Must Join 20 Live Sales Calls Post-Close
“Being brave to me is venturing into a conversation where you don't really know where it's going to go…”
From Why Year-One PE Value Creation Requires In-Person Board Bravery
“So what's probably going to happen is you're going to get quoted a percentage…”
From Why a 1% Equity Pool Slice Yields Far Less Than Expected
“The issue with stock options is it actually requires you so there'll be a strike price and you you'll have to exercise your stock options.”
From Why Profits Interests Beat Stock Options in PE Equity Pools
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The week's private equity podcasts, boiled down to one short Sunday read, for deal professionals, operating partners, and LPs.
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