Private Equity 4.0: Reinventing Value Creation
New book by Professor Benoît Leleux
AIF is pleased to announce the publication of a new book co-written by one of our lecturers, Professor Benoit Leleux of IMD. Benoit has been running AIF's successful Private Equity program since 2005, and is co-author of the book "Private Equity 4.0."
Private Equity 4.0: Reinventing
Benoît Leleux, Hans van Swaay and Esmeralda Megally
Wiley, February 2015
Professor Leleux et al believe that Private Equity 4.0 is upon us, and with it hopefully enough experience to start drawing inferences about what works and what does not in private equity. The financial and economic crises beginning in 2007 were very much the last nails in the long-rotting coffin of private equity "as it used to be". Since the creation of ARD in 1946, private equity adopted and capitalized on a series of business models, replacing them when new opportunities to create value emerged.
Private Equity 1.0 capitalized on the organizational inefficiencies of large diversified conglomerates, splitting them apart with the financial helping hand of the junk bond markets of the 80s. The cycle came to a screeching end with the indictments of the junk bond kings and their patrons. The 90s were around the corner, and with them a glorious period of GDP growth, multiple expansion and ultimately a technology bubble of epic dimension in which Private Equity 2.0 bloomed under a new technology and growth guise. The internet crash of April 2000 brought the club back to earth. As no good deed goes unpunished, central bankers came to the rescue of the faltering economies that followed the 2000-2001 corrections, opening the floodgate of a liquidity surge private equity quickly took advantage of in its 3.0 iteration. As for all previous irrational exuberance episodes, the party had to come to an end when realities intruded on the collective hallucination, taking with it the cheap leverage dreams. The credit bubble was over: it was time to find a new model for value creation that would not be as dependent on financial engineering or the availability of cheap credit. Welcome to Private Equity 4.0, a model that spells the return to the sources of private equity: value creation through operational improvements and the enabling of growth rather than on pure financial engineering. In other words, earning money the hard way…
The book is anything but a blind endorsement for the industry. It is always incisive, and at times critical if not cynical. Like all industries it has its black sheep, and exposing certain dubious practices only reinforces the credibility of the industry as a whole. The authors can best be described as "critical believers": they are convinced that private equity embodies and leverages some of the most effective tools of capitalism. But because of this, it also "packs a wallop", and as such its potential for misuse is great. Nobody ever said making money was easy… In this book, the authors offer insights into the industry deals and rules of engagement with a view to discover the most effective ways to reap the benefits from it. The recipes are not simple, but like a good cooking book, the rewards can be most satisfying…
Dr Benoît Leleux
Dr Leleux is the Stephan Schmidheiny Professor of Entrepreneurship and Finance at IMD in Lausanne (Switzerland), where he was director of the MBA program and director of Research and Development. He was previously Visiting Professor of Entrepreneurship at INSEAD (France) and Associate Professor and Zubillaga Chair in Finance and Entrepreneurship at Babson College (MA, USA). He obtained his PhD at INSEAD, specializing in Corporate Finance and Venture Capital. He is recognized as a leading specialist in entrepreneurship, venture capital, private equity and corporate venturing, in particular in emerging markets. His latest books include "Investing Private Capital in Emerging and Frontier Market SMEs" (IFC, 2009) and "Nurturing Science-Based Start-ups: An International Case Perspective" (Springer Verlag, 2008). Dr Leleux earned a MSc in Agricultural Engineering and a M Ed in Natural Sciences from the Catholic University of Louvain (Belgium) and an MBA from Virginia Tech (USA). His teaching cases have earned some 17 European case writing awards and he has been running executive educations programs and consulting assignments for more than 50 leading global corporations and investment organizations.