There is a nice summary of the differences between banking and PE in a recent article on McKinsey Quarterly ("Creating value: The debate over public vs. private ownership").If I may quote a couple of paragraphs (below), Johannes Huth (MD and head of European operations for KKR) makes it sounds like PE is more akin to the consulting point of view than the banking point of view. Of course, McKinsey may have quoted him for just that reason, but it's still interesting."Do public market investors look at business in the same way as private equity investors?"Johannes Huth: No. The two are fundamentally different. A public market investor might reason that if one business is trading at 10 times earnings and a similar one is trading at 15, then the former is undervalued and the investor should buy the undervalued stock and then trade up. That's not the way private equity investors look at a business. We look at the latter business and reason that while it's trading at 15 times earnings, if we take out some costs, maybe restructure something here, sell something there, we can get this business really at an implied value of 10 times, and that's much better. So we look at it, really, from an industry perspective, and I think that's why we are much closer to the way that some of the better-run companies are. If you ask what's our role model, it isn't Goldman Sachs. It's much more like GE: we want to be a very good manager of businesses."
