Would the real patient capital please stand up?

Kimberly Romaine
24 October 2011

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Nearly two decades of PE ownership has taught the management of V.Ships that not all financial backers are created equal. Kimberly Romaine speaks to CEO Clive Richardson about the pros т and cons т of private equity ownership.

In July, Omers beat off competition from four buyout houses - including Permira and Charterhouse - to become the latest in a string of institutional owners for global shipping giant V.Group. The $520m deal saw ownership shift from incumbent backers Exponent to the Canadian institution following 18 years of traditional private equity ownership. The new backers have deeper pockets, no LPs to contend with, and therefore can afford a longer outlook than typical private equity houses.

Q. You've been owned by private equity for a very long time. How does it impact on your business? Are all PE outfits similar?

A. It all depends on how well you can work with the PE investor and how well the business is performing. When it is going well the relationship supports growth, because all of the team around the Board table are aligned, pursuing the same objectives. In addition, PE brings new perspectives to a business, because they've seen the way things work in other sectors. They can force management teams to refresh their thinking.

When things get a little tougher, however, then the temptation for the PE house to intervene can prove too much for them and they become more involved in the day to day running of the business. That's when the differences between PE houses will show. Some are calmer than others in a crisis and it is often down to the relative experience of the key sponsor on the Board. I'm not saying that it has happened in our case, but there's no formula that can be applied to a big management challenge.
Despite the declared differences in style and approach between the PE houses they do tend to apply vanilla solutions to a problem. They might bring in a cost efficiency consultant, re-engineer the core processes, overhaul the sales effort or change the CFO. They might do all of these things!

At difficult times we have been fortunate to be able to rely on our relationships with the PE sponsors. That's ultimately what makes the difference between good and bad PE houses, the extent to which the management team is able to build trust from the time of the initial investment to the point of exit. I guess it must be the case that some PE sponsors never trust the management and I reckon that there's a strong correlation between that and investments going bad.

Q. Do you feel Omers is different to traditional PE?

A. Obviously it is early days, but we did feel during the sale process that Omers would have a longer-term view than other PE houses and so fit better with our culture, style and markets. Because there is no pressure to return funds to investors we anticipate that if we need further capital it will be made available (assuming we put forward the right business case!), wherever Omers is in its investment cycle.

Our sector requires patience and V.Group needs to take the right decisions, at each point in the cycle. Again, without fingering any of our past investors (all of whom gave V.Group fantastic support) it is very difficult when the PE investment cycle is out of synch with the business cycle. I think this is where Omers will really score versus their peers in the PE world. They can afford to make the right decisions at the right time and won't be thinking about the investors in their own fund. That divergence of interest just won't be evident.

There's a good chance then, in the case of Omers, that we will get the best of both worlds. An innovative PE approach that challenges the management team with fresh thinking and drives alignment of strategic objectives, on the one hand and a longer term, more patient style on the other, which allows us to stay in synch with the cycle. Sounds like a match made in heaven!