“You can only build something from nothing with a private equity mindset,” says Matthias Fackler, EQT Partners head of infrastructure Continental Europe. It’s an interesting phrase. In the case of connectivity assets, it might imply a view that infrastructure--in some cases--is worth "nothing" or very little.
The statement also illustrates two key issues in the connectivity business: low revenue growth and low profitability.
So almost by definition, if private equity firms are active in an industry, it means there are financial stresses.
Private equity is about the buying of public assets, taking them private and then selling, typically when a public company asset is deemed to be underperforming. Quite often, the goal is to sell the assets within five years. That virtually always means that long-lived investments such as capital investment in networks are avoided, with the emphasis on operational restructuring.
Public companies tend to “buy to keep.” Private equity always “buys to sell.” In other words, private equity acts as a turn-around specialist. They arguably excel when able to identify the one or two critical strategic levers that drive improved performance.
They have a relentless focus on enhancing revenue, operating margins, and cash flow, plus the ability--as private entities--to make big decisions fast. That might be a greater challenge than is typical as a result of the Covid-19 pandemic, which is depressing connectivity provider revenues and profit margins.
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