‘Private for longer’ driven by digitalisation
Private equity ownership represents a better fit than declining public listings for digital firms as they push to rapidly scale up their disruptive business models, researchers have said.
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"Am considering taking Tesla private at $420. Funding secured," tweeted Tesla CEO Elon Musk on 7 August this year[/caption]
The decades-long slump in US stock market flotations is linked to the very nature of digital businesses and their need for “expert manpower, contacts and strategic relationships” private investors bring, according to a new piece penned by professors Vijay Govindarajan, Shivaram Rajgopal and Anup Srivastava.
Their article, published by the Harvard Business Review, argued the private-for-longer trend is not a threat to the US economy but a “sign of successful adaptation”. It reflects, the piece added, that “grow fast and be acquired” – rather than a slow run-up to an IPO – is the most efficient route to success for digital firms built around technology-, knowledge-based assets.
Given their intangible nature, these firms can launch faster than their manufacturing counterparts, researchers said. Their predilection for lean operations – where finance, marketing and other functions are outsourced – makes their needs “better met” by private equity. The asset class creates value by bringing on board a “sophisticated” knowledge base and liaising with partners including outsourcing providers and scientists, researchers added.
Digital ditherings
Whether private equity has the know-how required by the digital economy is a point of debate in industry circles, however. In conversations with The Drawdown, various experts have warned of a lack of internal expertise in GPs – also reflected in industry surveys– and the need for a "new generation"of data minds. Some in the industry are actively working to lure younger professionals, able to better read a digital economy.
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Almost four-in-10 managers surveyed by Augentius this year cited lack of tech know-how as a key obstacle for innovation[/caption]
Widely documented by data, the private-for-longer phenomenon has been explored at length by experts and media pundits. The spotlight has typically fallen on technology giants including Uber, still privately held despite reportedly reaching valuations in their tens of billions. The decision by Tesla founder Elon Musk this summer to tweet about his – for now abandoned– plans to delist the e-car maker has injected fresh steam into the debate.
The Drawdown has explored the advantages that private equity’s model represents for portfolio companies. LPs have contrasted the “single, informed, influential” nature of GP owners to the demands of public listings, while world authorities have noted the potential to drive positive ESG change. Controversy, however, has also emerged around the social implications PE’s influential ownership can sometimes create.
"Am considering taking Tesla private at $420. Funding secured," tweeted Tesla CEO Elon Musk on 7 August this year[/caption]
The decades-long slump in US stock market flotations is linked to the very nature of digital businesses and their need for “expert manpower, contacts and strategic relationships” private investors bring, according to a new piece penned by professors Vijay Govindarajan, Shivaram Rajgopal and Anup Srivastava.
Their article, published by the Harvard Business Review, argued the private-for-longer trend is not a threat to the US economy but a “sign of successful adaptation”. It reflects, the piece added, that “grow fast and be acquired” – rather than a slow run-up to an IPO – is the most efficient route to success for digital firms built around technology-, knowledge-based assets.
Given their intangible nature, these firms can launch faster than their manufacturing counterparts, researchers said. Their predilection for lean operations – where finance, marketing and other functions are outsourced – makes their needs “better met” by private equity. The asset class creates value by bringing on board a “sophisticated” knowledge base and liaising with partners including outsourcing providers and scientists, researchers added.
Digital ditherings
Whether private equity has the know-how required by the digital economy is a point of debate in industry circles, however. In conversations with The Drawdown, various experts have warned of a lack of internal expertise in GPs – also reflected in industry surveys– and the need for a "new generation"of data minds. Some in the industry are actively working to lure younger professionals, able to better read a digital economy.
[caption id="attachment_4707" align="alignleft" width="350"] Almost four-in-10 managers surveyed by Augentius this year cited lack of tech know-how as a key obstacle for innovation[/caption]
Widely documented by data, the private-for-longer phenomenon has been explored at length by experts and media pundits. The spotlight has typically fallen on technology giants including Uber, still privately held despite reportedly reaching valuations in their tens of billions. The decision by Tesla founder Elon Musk this summer to tweet about his – for now abandoned– plans to delist the e-car maker has injected fresh steam into the debate.
The Drawdown has explored the advantages that private equity’s model represents for portfolio companies. LPs have contrasted the “single, informed, influential” nature of GP owners to the demands of public listings, while world authorities have noted the potential to drive positive ESG change. Controversy, however, has also emerged around the social implications PE’s influential ownership can sometimes create.