The Deal's David Carey sat down over lunch with Scott Sperling, co-president,
Thomas H. Lee Partners LP, this afternoon to discuss a range of issues
including the way private equity is portrayed in the press, megafunds, club
deals and the ever-increasing size of LBOs.
In talking about the negative stereotypes that private equity has regarding
layoffs and asset selloffs, Sperling discussed criticism that his firm has
come under regarding Warner Music Group. He said that TH Lee comes into LBOs
with two key goals: improve the free cash flow; and structure the business for
growth in the long term.
In the case of Warner Music, it had layers of distribution and management that
were preventing things from happening and from changing an unsustainable
business model. "Rather than stripping, we dramatically enhanced the
effectiveness of the company, so much so that we were able to take our money
out fairly quickly," Sperling said.
Sperling went on to say that the debt markets have been very helpful in
creating an advantage for PE players relative to strategics.
The single biggest change in private equity in the last two to three years, he
said, has been the willingness of limited partners to co-invest in a deal with
the fund. The willingness of banks to temporarily underwrite portions of the
equity investment have also helped PE firms to make larger and larger deals.
—George White
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