Private equity predatory capital? That is certainly not my impression. Throughout my career, I have encountered private equity at various times — an experience that sharpens your leadership skills, so to speak. And that is extremely educational and even enriching.
When I took office as CEO of the Bilderberg Hotels Group in 2003, the briefing was by the then shareholder: First, I was asked to lead the company in the Netherlands and Germany. Second, to entice the banks to refinance the debts that were owed to the company. These were challenging times for the group and the situation was so poor that my third assignment was to search for buyers with the owners before a curator would do that.
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The banks simply wanted their money back, there was no rack there. We have 23 in a short time roadshows organized with potential buyers in the Netherlands and Germany. For the most part, these were private equity parties — whose new owners eventually became 2 large funds.
Along the way, I learned a number of laws that have benefited me greatly afterwards, because they are ultimately about the importance of developing a shared horizon that is good for the owners and the continuity of the company:
1. Choose your battles
The success formula of private equity parties is: buy low, sell high. Their horizon is relatively short — 5 to 7 years — and within that time, turnover must increase significantly, optimizing operational costs with low overhead. It is up to management to determine what is essential to the company's future success. Which costs can be reduced and which cannot? Where are the opportunities for improving sales?
Under the private equity regime, you are really put on edge: A high return requirement with a limited horizon where a lot has to be achieved.. Every quarter, all figures are compared to each other, and the effect of your decisions is closely monitored. With the team, you get a huge focus and are forced to set the right priorities.
This is about finding and nurturing the right balance between the interests of the company and the employees on the one hand, and the wishes of the owners on the other. That's how I knew that the Bilderberg brand name was still a valuable asset in the Dutch home market even in those difficult times. The American owners had no feeling about that: they saw more benefit in re-branding the hotels into Holiday Inn and Crowne Plaza. We were able to prevent that — successfully, although you don't know that when you make that decision. To do that, you need to be firm and have a very good argument.
2. Take care of real estate
The tendency in private equity is often to dispose of all the real estate in an acquired company — V&D is a good example of what that can lead to. Indeed, selling properties immediately makes a lot of money, but they make the acquired party an empty shell, which is also filled with debts to finance the takeover price, without many assets in return. Real estate was worth a fight at Bilderberg. Which properties are “must haves” and which could be sold? And if sales are made, can we afford the rent to be paid? Keeping the brand and the real estate is the start, then reloading the brand by investing in the real estate and employees is crucial for the company to be successful again.
3. Be a strong buffer between organization and owner
Set an example and lead the way. Gather the strategic knowledge and insights in your leadership team so that you can optimally provide facts and arguments that maintain the balance between company and owner. Strengthen your team with that strength and ensure optimal trust in your team. Trust by managing expectations and no surprises. Be proactive and clear in your communication
4. Recognize the person behind the fund manager
Even when things go tough, doing business with private equity parties remains a human job. Build a personal relationship with your fund managers — assume they won't last forever, in the world of private equity, people often change positions. So build a good relationship over and over again and repeat over and over again what's important to the company, what decisions you make and why. This repetition exercise further sharpens you in getting your story across.
At Bilderberg, we managed to do a successful turnaround before we faced the credit crisis in 2008. Together with the owners, we also withstood that storm very well so that we could properly transfer Bilderberg to a new owner years later. It was a challenging process and has clarified the essence of leadership: Building a good team, gaining knowledge, making choices and keeping track.
