The Rise of Private Equity

 

 

Over the past 40 years, private equity as an investment asset has grown dramatically. The deal that arguably put PE on the map for the public was the purchase of iced tea maker Snapple by private equity firm Thomas. H. Lee in 1992. THL brought Snapple public only 8 months later; 2 years later, it was sold to Quaker Oats for $1.7 billion.

Scott Sperling, Co-Chief Executive Officer of private equity firm Thomas. H. Lee discusses that and other important private equity deals, including Warner Music, TRW, and Dunkin — all THL transactions. Snapple became a model for other deals in PE: Identifying a company whose growth can be accelerated, redeploying assets in a way that creates that positive return, then allowing the market to revalue the firm.

He explains how Private Equity has changed over time — from when he was running Alts for the Harvard endowment. When he began there in 1984, there were almost no alternative investments, and by the time he exited the endowment 11 years later, they made up about 20% of holdings. Today, Alts are commonplace at endowments. However, valuations are much higher, and both recent and expected returns have fallen. He also describes how pricing in private markets currently ranges from “fair to frothy.”

Sperling has been Co-CEO for over 20 years and is a member of the firm’s management and investment committees. From 1974 to 2006, THL raised more than $22 billion in assets across 6 institutional private equity funds, completing more than 100 investments in excess of $125 billion in aggregate PE purchases. Their flagship fund has more than $5B in it, and their Automation Fund has about $900 million in LP assets.

Some of his favorite books is here; A transcript of our conversation is available here.

You can stream and download our full conversation, including the podcast extras on iTunesSpotifyStitcherGoogleBloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Carson Block of Muddy Waters. The firm is known for its scathing in-depth research reports and shorts of various companies, several of which have collapsed.

 

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