Running a successful global private-equity investment fund is not that different from running a successful NBA team. Both require the right deal, team, culture and strategy, along with the self-discipline to stay the course when the going gets tough. “You use your head, go with your gut and never lose sight of your heart, because at the end of the day, this is what pushes you ahead,” said John Diggins, a partner at California-based Platinum Equity, who spoke at this year’s Michigan Private Equity Conference on Oct. 4.
Diggins’ words of advice come from straight from the center court of private-equity investing and professional basketball competition. He and his partner, Tom Gores, launched Platinum Equity in 1996, and over 17 years, the two built their business into a billion-dollar global private-equity firm. Recently, they closed on their third fund after raising $3.75 billion in an extremely tough fundraising environment. Two years ago, Platinum Equity bought Palace Sports and Entertainment, which includes the Detroit Pistons NBA team and the Palace of Auburn Hills. The acquisition of the underperforming sports team presented Diggins and Gores with many of the same challenges they have confronted when buying and turning around troubled companies in their portfolio.
“The good news is that we made a coaching change by hiring Maurice Cheeks, drafted several new players, and spent considerable money on capital improvements at the Palace to turn it into a state-of-the-art sports and entertainment complex,” Diggins said. “ESPN has picked the Pistons to finish sixth in the highly competitive Eastern Conference. We have to make sure it happens.”
Platinum Equity’s resolve to turn losers into winners is evident in the deals they are doing in Michigan and neighboring states. “We’re very bullish on Michigan,” Diggins said. “Tom and I are both from the state originally, and we’re here to stay.” Platinum Equity currently has company holdings in Michigan’s automotive, aerospace, boat/marine and sports/entertainment sectors. Deal flow, however, has been spotty, and there is price dislocation between buyers and sellers, especially on family-owned companies and smaller deals. As a result, putting private-equity money to work has been challenging.
Diggins outlined several strategies that PE general partners can put into play in their portfolios to gain traction in today’s highly competitive deal-making environment:
Leverage regional and national partners
Look for platform deals and tuck-ins
Identify operating efficiencies
Keep IRRs of capital deployed at constant levels
“We see a lot of challenges and opportunities in the Midwest,” Diggins said. “So we know we have to work harder and smarter.”
For more information on the 8th annual Michigan Private Equity Conference, visit our page.