Steve Wolosky Quoted in The Deal on Private Equity’s Value Creation Through Public Companies

Partner and Co-Chair of Olshan’s Shareholder Activism Practice Steve Wolosky was recently quoted in The Deal (subscription required) in an article on the increase in U.S. companies accepting large minority infusions from private equity firms, especially those in software and technology. PE companies are realizing, Steve explained, that purchasing stakes in publicly traded companies gives them the opportunity to capitalize on their in-depth research in a way that they could not do if they only participated in auctions: “A company decides to sell itself and they do a process, signing 36 NDAs and getting 18 first-round bids and nine second-round bids. Those nine do due diligence and have management meetings and spend lots on bankers and lawyers, so that one firm can buy the company. The other eight losing bidders spent months on the project, and what do they have to show for it? Nothing.” On the other hand, a PE company buying just under 10% of a company it has researched can also benefit. “I go in as a friend of the company,” Steve said, “and if they put themselves up for sale, I am on the inside and may have an advantage if I participate in the auction. I put in $1 billion, sign an NDA and make all of my team available at no charge to help them improve operations, so if that takes profit up by X then the share price will go up by Y and I can take my profit and go home.” Some PE firms, he added, may “buy to own,” but the investments represent a “great investment philosophy” by deploying capital without having to compete with other PE firms and potentially “waste a lot of time and money” as they might in an auction process: “It is more than an inside track on a sale, but an opportunity to drive value.” However, Steve warns PE firms against buying into a public company with the primary intent of discouraging an activist hedge fund, saying, “A private equity firm has to ask itself: ‘Why am I doing this deal? Am I doing it to help stop an activist, or do I fundamentally believe the company has a good story and vision, then maybe, but if I think the activist knows how to drive value, do I want to step into this hornet’s nest?’”