Private equity takeovers - Capitalism in its extreme form.

Almost daily we here about takeovers – hostile or not – by large corporations worldwide. Mergers & acquisitions are usually initiated with good intentions and are ought to provide benefits for both (or multiple) parties, but this is not always the case. Often leveraging synergies and/or economies of scale. But the real question is: are they really serving a greater purpose, in the long run. Or is it just another way to fill the pockets if investors?

 

"And that is exactly what is – in my opinion – the wrong approach."Last week the US-based Kraft Heinz proposed an offer to take over Unilever for more than 130 billion euros. The American food giant is backed by a private investment group called 3G Capital, who are in turn, are experts in cost-cutting strategies. They basically cut down all budgets to zero and have managers fight for every penny. All serving one purpose: maximizing profits and thus maximizing SHAREHOLDER VALUE. And that is exactly what is – in my opinion – the wrong approach. In the short term this exercise can be highly value increasing, but it holds no long term vision and therefore no sustainable future for the company and (ALL of) its stakeholders.

Using shareholder value as a focal point and having a short term vision often comes with a strong cost focus. Meaning analyzing and steering on figures and therefore performance. Performance of the company itself, but also the input/output of its employees for example. This input and eventually output is isually measured by KPI’s which in turn can become a bottleneck. Managing people by KPI’s ultimately leads to a lack of morale amongst employees. And trust me, I can tell, having worked with a publicly listed (American) company. Of course, performance and figures have to be monitored to be able to manage a company as well as to make sure that it is moving towards its objectives. But acquiring companies, stripping them down cost-wise and then – often times – selling them off again is the extreme form of capitalism. And that is what most private equity firms do, with little to no long term vision. In the end it’s all about the money. Kraft Heinz may have pulled back their offer in the meantime, but chances are that they will return with another attempt to acquire Unilever. And that is exactly what we for example the Dutch government should be aware of. And, in my honest opinion they should interfere in such takeover attempts, like the British do with their takeover panel. At the end of the day, we don’t want all the companies we are so proud of to end up in foreign hands, right?

 

Luckily Unilever has Mr. Paul Polman as its CEO, a visionary with a long term and sustainable focus. Paul Polman should be an example for all the leaders of corporations with a global presence as well as financial institutions and investment companies. It goes without saying, that making money is the essence of capitalism, but business leaders have to choice in how they want to make money. You can either choose to be a ruthless profit machine taking into account no other objective than maximizing profit. Or you could choose to do it in a meaningful way, choosing a responsible strategy to achieve your goals. That is, making an impact that matters whilst reducing the ecological footprint of your business for example. Or initiate social projects that help society progress in the countries you are present in. It all comes down to considering the consequences of your company’s decisions and actions.

Polman’s brother cited: “The best was never good enough for him. He always aims for the highest possible, but he always keeps in mind the social aspect”. Combining these ideologies can bring prosperity for the decades and centuries to come. What we need are more leaders like Mr. Polman. And as another CEO of a Dutch multinational Mr. Feike Sijbesma (DSM) said: “We worden te veel geregeerd door geld” (we are too much led by money, we are too money driven). So please let us be aware of being too money driven and let these capital investors do no harm to our precious Dutch (and British) Unilever for the sake of maximizing shareholder value.

What are your thoughts on PE firms and their business models / strategies?

5 april 2017