Hearing that the private equity companies KKR and Blackstone were in talks, now suspended, to buy the EDA company Cadence, took me back to a dinner in Greece in April where the CEO of an EDA company was saying he gets about ten calls a week from private equity people. "They don't propose anything specific. They just say: 'Let's talk'", he said.
It was not the CEO of Cadence, and the CEO in Greece gave the impression he wasn’t at all interested in the idea of a buy-out.
It now looks as if the CEO of Cadence is similarly inclined to resist private equity's blandishments, because takeover talks are reported to have stalled. But it begs the question: What kind of CEO is interested in a private equity buyout?
The answer has to be a CEO who doesn’t care much about his company or his people. After all, if he cares about his company and his employees, why should they do better from the decisions taken under private equity management, than from those taken under his management?
If he wants to do good stuff for the company, why can’t he make the decisions to achieve that, rather than have the private equity funds make the decisions?
Recently John Daane, CEO of Altera, made the point that you can’t blame the private equity people for seeking deals, but you can blame managements for agreeing to them.
“It's not the investment people that make the bad decisions, it's the boards of the companies which make the bad decisions by deciding to sell", said Daane, "if the management think they're better off selling, then they could do the necessary work themselves but, in many of these cases, the management make a lot of money."
That’s the nub of it. Don’t blame the private equity people, that's simply like trying to stop a dog rolling in muck, that’s their nature.
But what do you call a CEO who takes a large chunk of cash for himself from a private equity bidder, then sacks his people and mortgages the future of his company to satisfy the cash demands of the new owners?
Something unprintable.
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