@DMcCunney & @daleste: good discussions! In my view, turn-around specialists like KKR and Bain engage up to the point of turning around the market value of the companies they take over and not the market share of the companies' products and sustainability thereof! Once the turn around specialists realize liquidity, they move on to the next opportunity. In doing so, I think they miss even bigger gains in the long run by staying engaged with the companies they take over.
Hello DMcCunney, I agree with all you said. Sorry I simplified it too much. I agree that the venture guys do help companies to focus. It is often at the cost of many employees, but as you point out, it would be many more if the company folds. Once the company is spun back out to a publicly traded company, they are on their own to build back up their equity that is much reduced after the equity companies took their share. Also, most of the key players that worked with the equity firms to go private, left early on with their big pieces of the pie. There are some winners, but the rank and file usually get the biggest shaft. Just my thoughts.
@Daleste: Venture capitalists investing in startups and turn-around specialists like KKR and Bain have similar business models: they acquire control of a firm for a low price, and attempt to get the firm to a point where they can sell their interest for a steep multiple of what they paid.
They largely have to. Most of those investments do not pan out. The number of VC funded startupos that successfully IPO is a tiny fraction of those funded. The number of firms that are successful turn around efforts are a small part of the number of attempts.
It's a bit like the movies: most films greenlighted for production tank at the box office. The studio is betting that enough will become $100 million grossers to cover the losses on the ones that tank, and make enough money to keep the studio in business.
People like KKR and Bain look at shrinking and refocusing a company. Often, the company involved has grown too big, has lost focus, has too many balls in the air, and has weaknesses in core business segments, with the enterprise a house of cards waiting to collapse.
The question is what would have happened to NXP if KKR and Bain hadn't gotten involved. Frankly, the likely answer is that NXP would have ceased to exist.
We'll see whether NXP in its present state can successfully compete, but being smaller is not necessarily a handicap. In the businesses they are in, you pretty much have to be one of the top two or three in a particular market to be successful, and if you can't do that, you are best advised to exit that market. I think NXP has plausible chances if they target areas where they can add value and be one of the top three. It will depend on how good they are at choosing what those areas are.
Junko, in fairness to NXP, they better have a robust innovation process in place that results in products that differentiate and add value from those of the companies' that I cited. That is one of the ways to justify higher valuation and attract investors to the company.These companies are actively innovating new products and the market seems to have fairly-valued their PE in the low 20's.
In comparison, if you look at Fairchild's recent announcement on being a fabless MEMS company (via Xsens acquisition), the message (though not all details are revealed) seems to be saying how they are going to be different from others in the sensor market and make a play in the I-o-T market:
@Junko: I think the NXP stock is overvalued when compared to its peers (like INTC, TXN, ADI, MRVL), all which trade in the low 20's PE ratio. NXP which trades at a PE of 32 is a couple of $$ shy of its 52-week high of $63.xx. The secondary offering of 17+M shares at $60.35 each is not quite attractive to investors in my opinion.
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