Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

Barbarians drive through the gate

Posted by Arun Uday on May 17, 2007

The major headline this week in the PE world was the acquisition of Chrysler by PE firm Cereberus for $7.4 billion. It was not so much the size of the deal thats got people talking. While $7 billion may seem large,  my guess is that it wouldn’t even count amongst the top 10 largest deals of 2007. Rather, it’s the “fall” of an institution such as Chrysler, an emblem of American industrial prowess to “corportate raiders armed with money bags” thats really dented Uncle Sam’s psyche. Two points to ponder upon here. One is of course, the incredible power that PE firms wield today. But, more on that in a later post.
What I’d like to discuss here is the inexorable law of business lifecycle that all companies are subjected to. There was a time when it was said “Whats good for General Motors is good for America.” For decades, it was first on Fortune 500 list and was the symbol of American corporate might.  Today, it’s annual report reads like the script for a Greek tragedy – workers up in arms with management, huge financial liabilities and a share price thats on a free fall.  Chrysler, along with Ford and GM completed the triumverate of the Big Three of the automobile industry in the US. Now, the score card reads – One down two to go. It is interesting to compare the top 10 list in terms of market capilalization across time.

Note that just one company – GE, makes it to all the top ten lists above. Further, many of the companies that were amongst the top 10 at various points in time – AT&T, Xerox, AOL, Lucent, Eastman Kodak, Sears Roebuck amongst others have either been already acquired by other companies or barely suviving. Even a company such as Microsoft, that holds the distinction of maintaining a monopoly over the consumer technology business for such a long time today feels threatened by a company that didn’t even exist a decade or so back – Google. (BTW, My friends in MS tell me that the perception of threat within MS from Google is very real. For the first time, MS really feels that they have a formidable competitor who can take them on.) Do we need more evidence of the validity of the law of business lifecycle? Of course, on another note, large empires – Greek, Roman, Egyptian, British etc have all emerged and subsequently fallen victim to that all powerful force we call “Time”. So, it is only but natural that we should expect the same with corporates, which are in one sense just modern day adaptations of these.

PS: For those wondering what the title of the post alludes to see – this.
Also, for those interested, there is another good book on Private Equity thats been recently released.

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