The Pros and Cons of Private Equity

When I was a kid, “PE” meant physical education classes in elementary school, and by “classes” I mean that we played kickball or softball or volleyball or something like that. The “education” part was mostly lost on me … but I loved PE.

As an adult in the fishing industry, PE means something very different. It means “private equity” — investor money used to acquire interest in private businesses.

We’ve seen a lot of PE coming into the fishing industry in recent years, and I’ll assume for the moment that it’s all been intelligently spent with terrific intentions that bode well for the future of our sport. I have no intention or desire to assess specific PE maneuvers, and, in all honestly, I would not be qualified to do so. That’s way outside my education and experience.

But I’ve seen enough of PE and talked with enough small- and medium-sized tackle companies to have developed an opinion of how it has succeeded and how it has fallen short at times.

I may be off on my dates and events, but it seems to me that the PE push into the outdoors industries took off in 2012 when Cortec Group spent $67 million to acquire a two-thirds interest in Yeti Holdings, Inc. — the folks who make the $500 coolers.

(Note: I do not have a $500 cooler or $67 million but will provide my mailing address upon request.)

That investment put the valuation of Yeti at $100 million. Today, it’s estimated value is something more than $5 billion, and Cortec’s investment is worth better than $3.3 billion.

Not bad, huh?

Well, Cortec’s success showed other PE firms that there was opportunity in the outdoors, and we’ve seen an increase in investment in that time from outside our industry.

Is it good? Is it bad? Will it grow the sport? Will we all get rich?

The answers, respectively, are it depends, it depends, maybe and no.

The future of private equity in fishing

The challenges of an outside investor coming into the fishing space are many. Who do they trust? Who do they put in charge? What sorts of positive changes can they make? What sort of barriers to production can they remove? What sorts of economies of scale can they create?

Answer these questions and you’re well on your way to determining whether the PE investment and involvement will be successful.

But these things take time, and time is not on the side of most PE investments. The goal is to buy now and sell in three to five years to another PE firm … at a profit. During that time, they want to see sales growth and a reduction in costs. They want to streamline operations and leave some meat on the bone for the next investor.

If a PE firm improves manufacturing, they need to be able to tell a prospective buyer (the next PE firm) that there’s room for growth overseas or that better marketing will allow the investment to expand production.

It’s hard to talk about “streamlining,” “improved efficiencies” or “cost reduction” as bad things, but they usually have human costs.

When a PE firm buys two tackle companies, they may not need two presidents, two marketing directors, two sales managers or two production facilities. One of each could be plenty, and that means one has to go. The numbers are even more sobering if there are three or five or 10 companies involved.

And a lot of the people losing jobs are talented, knowledgeable, experienced folks with much to offer. They may not deserve to lose their job, but they’re in the wrong place at the wrong time.

And when these industry people go, they sometimes take the company’s creativity with them. PE firms are often risk averse. They’d rather cut costs and improve distribution to show growth than introduce something new, different and risky.

Right now, I know a lot of small- and medium-sized manufacturers who are waiting by the phone, hoping to get a call from a PE firm.

Those calls come with regularity for some, but the offers aren’t always attractive.

And the results aren’t always what anyone would want.