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In Thursday's testimony before the U.S. House of Representatives Committee on Small Business, Subcommittee on Investigations and Oversight, Hendrickson went to great lengths to defend private equity's "positive and crucial role" in the U.S.'s economy. Hendrickson's arguments may not be anything particularly new but deserve our attention nonetheless, especially now. Chief among them is the crucial difference between midmarket PE firms like Riverside and the LBO behemoths of the world. In her testimony, Hendrickson said that "some people have the impression that the private equity industry is comprised of a cadre of former investment bankers who use financial black boxes to acquire companies in big cities on the coasts and then vaporize their assets and employees." Whether this assessment is even fair when it comes to the big shops is a different debate for a different time. What isn't debatable is that many people (journalists included) not only share this view but probably consider it downright kind in its view of private equity. Just pick up a newspaper (or go to its Web site if it stopped publishing print editions). Hendrickson could of course only speak for her own firm when she said, "That is just simply not what we do." Instead, firms like Riverside focus on improving the value of companies in their portfolio primarily through sales and earnings growth, a simple concept that involves providing business expertise to streamline costs and enable expansion, often through add-on strategies. Only 8% of Riverside's total profit in the U.S. has come from balance sheet restructuring, and the firm has only done three dividend recaps in its history (these are some examples of the "financial engineering" you may have been reading about). It keeps its debt contributions and leverage multiples well below industry standards. It isn't alone, either. There are hundreds of middle-market PE shops that have quietly helped to created jobs and wealth throughout the country by helping small companies expand while creating others from scratch. Creating businesses? It's called acquiring so-called "corporate orphans" -- the division of a large cap company that has suffered from lack of capital and attention. In one such example, Riverside in 2005 bought safety products manufacturer Justrite Manufacturing in Mattoon, Ill. (pop: 18,291) from Federal Signal Corp. (NYSE:FSS). With Riverside's help, Justrite was able to grow by 40%, mainly by improving its pricing strategy, which permitted it to (wait for it!) add manufacturing jobs in America's heartland. That doesn't mean I can get behind all of Hendrickson's testimony. Her concerns with FASB 157 (the so-called "mark-to-market" rule) are, if not misguided, then certainly ill-timed. Mark-to-market is not perfect but it is nevertheless necessary in some form. It isn't going anywhere either. Best to just let that one go and focus on educating the public to the virtues of private equity, particularly midmarket PE. There are several, as Hendrickson demonstrated. Many seem obvious, which goes to show just how much work remains to be done. - Nathaniel Baker
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Despite the public's ugly view of private equity, midmarket PE firm Riverside Co. sent COO Pam Hendrickson to Capitol Hill to educate Congress on PE's real role in the economy. 
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