Comments on: Ceridian Acquisition http://www.jeitosa.com/blog/2007/06/02/ceridian-acquisition/ Making Global Business Possible Tue, 19 Jan 2010 02:27:05 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: Karen http://www.jeitosa.com/blog/2007/06/02/ceridian-acquisition/comment-page-1/#comment-919 Karen Sat, 14 Jul 2007 00:33:17 +0000 http://www.jeitosa.com/blog/2007/06/02/ceridian-acquisition/#comment-919 Rick, I'm sorry to hear your very jaded opinion of PE firms. While I understand where it comes from -- certainly PE firms have not always acted in the purest of interests -- I still hold a more optimistic view that they have learned from their past mistakes. Indeed, a recent article by Walter Kiechel III in the Harvard Business Review, "Private Equity’s Long View," (July-August 2007) speaks of a more holistic approach that PE firms are taking in re-building firms in distress. Kiechel points out five major tactics that PE firms focus on: "• They use debt aggressively (something the early partisans of strategy had to encourage their clients to do, stuck as they were in Depression-era thinking). • They focus on cash flow, not on earnings reported for accounting purposes (early strategy consultants discovered that their clients • didn’t actually know their real costs, obscured as those were in the way they presented their financial statements). • They reduce costs relentlessly (believe it or not, before the revolution most companies didn’t think you could do this systematically). • They identify a strategy that favors the line of business in which the acquisition dominates its competitors, and then they often sell off its other businesses (it was the strategy movement that got companies thinking about their assets as a portfolio of businesses, with some stars and some dogs to be divested). • They think imaginatively about who would constitute the best owner for the business and ask how long an owner should hold on to the property (the correct answer is seldom “forever”)." The author goes on to say, "... PE clients [are] the most economically rational of owners. Often this means they’re willing to dispense with niceties that publicly held companies view as sacred (Why not outsource human resources?) and to hold managers tightly to monthly, even weekly, goals..." They also know that they won't be able to IPO or re-sell the firm for the profits they expect if they don't re-focus the company on their core strategy, cutting costs where necessary and putting development dollars where needed. I guess only time will tell us how Ceridian and others will fare in this new era. Thank you for feedback! Rick, I’m sorry to hear your very jaded opinion of PE firms. While I understand where it comes from — certainly PE firms have not always acted in the purest of interests — I still hold a more optimistic view that they have learned from their past mistakes. Indeed, a recent article by Walter Kiechel III in the Harvard Business Review, “Private Equity’s Long View,” (July-August 2007) speaks of a more holistic approach that PE firms are taking in re-building firms in distress. Kiechel points out five major tactics that PE firms focus on:

҉ۢ They use debt aggressively (something the early partisans of strategy had to encourage their clients to do, stuck as they were in Depression-era thinking).
• They focus on cash flow, not on earnings reported for accounting purposes (early strategy consultants discovered that their clients • didn’t actually know their real costs, obscured as those were in the way they presented their financial statements).
• They reduce costs relentlessly (believe it or not, before the revolution most companies didn’t think you could do this systematically).
• They identify a strategy that favors the line of business in which the acquisition dominates its competitors, and then they often sell off its other businesses (it was the strategy movement that got companies thinking about their assets as a portfolio of businesses, with some stars and some dogs to be divested).
• They think imaginatively about who would constitute the best owner for the business and ask how long an owner should hold on to the property (the correct answer is seldom “forever”).”

The author goes on to say, “… PE clients [are] the most economically rational of owners. Often this means they’re willing to dispense with niceties that publicly held companies view as sacred (Why not outsource human resources?) and to hold managers tightly to monthly, even weekly, goals…” They also know that they won’t be able to IPO or re-sell the firm for the profits they expect if they don’t re-focus the company on their core strategy, cutting costs where necessary and putting development dollars where needed.

I guess only time will tell us how Ceridian and others will fare in this new era. Thank you for feedback!

]]> By: Rick Bernard http://www.jeitosa.com/blog/2007/06/02/ceridian-acquisition/comment-page-1/#comment-524 Rick Bernard Fri, 15 Jun 2007 16:49:27 +0000 http://www.jeitosa.com/blog/2007/06/02/ceridian-acquisition/#comment-524 A private equity acquisition to "re-tool" rarely means opening their wallet to significant capital expenditure investments to invest in new products and technology. First and foremost, a private equity firm will "re-tool" based on a financial model (read - headcount reductions), a model whereby they will need to report every quarter - regardless that they are not public, to their major lenders and investors that they are moving in the right direct towards increased operating profits, Ebidta etc. They will then file for IPO, and reap the profits, without ever significantly re-investing in product strategy or development - follow the history of SSA Global. If you think Ceridian, Kronos, Infor, etc. are set to reap the rewards of major product development and innovation - your kidding yourself. A private equity acquisition to “re-tool” rarely means opening their wallet to significant capital expenditure investments to invest in new products and technology. First and foremost, a private equity firm will “re-tool” based on a financial model (read – headcount reductions), a model whereby they will need to report every quarter – regardless that they are not public, to their major lenders and investors that they are moving in the right direct towards increased operating profits, Ebidta etc. They will then file for IPO, and reap the profits, without ever significantly re-investing in product strategy or development – follow the history of SSA Global. If you think Ceridian, Kronos, Infor, etc. are set to reap the rewards of major product development and innovation – your kidding yourself.

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