“People Want to Talk About Cool Ideas”

To succeed in private equity, managers should develop their own vision of which business combinations will succeed, rather than choosing only from those who make themselves available. “We first decide what we want to buy,” said Dick Cashin, managing partner of One Equity Partners. “Paying attention to what’s for sale is a little bit like going into a restaurant and asking what the specials are. You get the day-old food marked up. Why get them to tell you what you want to eat?”

Cashin, morning keynote speaker at the Fifth Annual Beecken Petty O’Keefe Private Equity Conference at Gleacher Center February 24, urged private equity investors to avoid any enterprise that converts materials. “That’s just a dead end,” he said. “The other kind of business is selling cool things to people. Those are the businesses that drive the economy, drive consumer satisfaction, and drive sort of industrial logic.”

Typically, businesses with high gross margins and high selling costs are prime targets, Cashin said. If companies agree to a merger, costs can be lowered and profits increased, he said. “It doesn’t really matter who they are. You could think of 53 of these businesses as we sit here, and you can dream up these dream dates. We never go in and say, ‘We’re interested in your business.’ We say, ‘What we’re interested in is your business combined with this other business. That is a very cool idea.’ People want to talk about cool ideas.”

Succeeding in private equity is as simple as finding some of thousands of truths overlooked by the rest of the finance world, he said. “We find a truth, we find a company that will benefit from that truth, and we look for some sort of combination that is a dream date for that company,” he said. “Everything’s complicated, but it’s simple at the same time.”

—Phil Rockrohr