Risky Ventures

skeleton on rockPrivate Equity’s Appetite for Risk

Risk – a four letter word if there ever was one – is reclaiming its rightful role in acquisitions. The last several years have seen a marked disdain for the concept of ‘possible adverse consequences’.

With every indicator moving up – the exposure to danger was nothing compared to the lure of lucrative deals.

Well, the current market conditions have shown us (again) that past performance is no guarantee of future returns. Yep. You could lose it all.

The statistics bear it out. A 2000 KPMG study found that 83% of acquisitions failed to create the expected return and 53% actually destroyed value. A 2002 six-year BusinessWeek study found that 61% of acquisitions destroyed value.

So what has been going on for the past 8 years? Appetite for risk went up. Way up. Now those chickens are coming home to roost.

Is the solution regulations?   Experts say no.

Continued bad results will likely attract more regulation. Better tools and more a more expert approach to M & A will provide improved results and lessen the demand for more regulation.


Equity caught some of Greenspan’s “irrational exuberance.” Deals were made that weren’t ideal – they weren’t even good. Equity needs to make sure it doesn’t reward people for deals no matter their outcome. I firmly believe that Equity has cleared its head and awakened from the binge.

It’s about time.

Make no mistake, deals will still be made. Hopefully, they will be more thoughtful and deliberate. Maybe M&A teams will think to use cutting edge tools and outside experts to minimize their risk and increase their reward.

Maybe, just maybe, M&A will have to earn it.

Risk. Knowing it, containing it, and managing it – is the key to successful acquisitions – not governmental regulations.

Have something to add? 
Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.                                                                                                                                                                                          Brought to you by;                                         www.packardacquisitions.com

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