Platinum Equity Co-President Jacob Kotzubei talks coping with inflation, firm’s carveout expertise at Milken Institute Global Conference

For the second consecutive year, Platinum Equity Co-President Jacob Kotzubei was invited to participate in a Milken Institute Global Conference panel discussion.

Flanked by other senior private equity investment professionals during an hour-long discussion titled Private Equity Delivering Value, Kotzubei addressed many topics, which included:

• Platinum Equity’s operational approach to building value.
• Platinum Equity’s long history of creating value through complex carveouts from corporate sellers.
• Platinum Equity’s portfolio-wide approach to the Federal Reserve’s interest rate policies.

“Across private equity as an asset class, the surface still looks really quite calm,” Kotzubei explained to a packed ballroom.

He acknowledged that the Fed’s efforts to fight inflation by raising interest rates appear to be working.

He cautioned that in a levered ecosystem, however, increased borrowing costs put pressure on portfolio company balance sheets.

“Defaults haven’t exploded, but there are a lot of businesses being held in private equity that are at or near negative cashflow. And the pressure point is not the month or the quarter or even the year, it’s the maturity,” he explained.

“It is a cost that is going up in your business, and if you don’t have a system and a team that can adapt, you have a problem.”

“I think there are many people (in private equity) whose entire careers have been in more docile environments. I think they just don’t have those skills.”

Kotzubei said the key for Platinum Equity, which has been through multiple cycles over the firm’s 29 years in the buyout business, has been engaging with portfolio company management teams developing comprehensive plans.

“We were able to go across our entire portfolio of 50-plus companies and have conversations with the management teams about how to react,” Kotzubei said. “One way to react is making sure you have a really good pricing strategy and pricing discipline.”

And strong, proactive leadership teams are a must.

“We had management teams who were seeing it in their business and had a plan, and we had management teams who weren’t seeing it but once they heard from us, kind of understood it and created a plan,” said Kotzubei.

“We had the occasional conversation with management teams who weren’t seeing it, didn’t want to prepare a plan, didn’t think they needed to, and that was a very long conversation.”

Ultimately, Kotzubei said he believes the most successful CEOs appreciate the partnership with Platinum Equity and leverage the firm’s deep operations experience.

“We have over 300 employees at Platinum and about a hundred of those are on the operations side. We offer (portfolio company management teams) a lot of help and what we have found is that the most capable, most secure leaders don’t fear that help, they embrace it.”

Earlier in the discussion, Kotzubei was asked about competition in the current M&A market on the buy side.

“I think where you can get better opportunities is where there is complexity,” he answered. “We specialize in corporate divestitures, we have for 29 years, and we love large, complex global corporate divestitures. You can see a lot of opportunity, but also the competition can winnow quite a bit because that’s a very tough skillset.”

The day before the Milken panel, Platinum Equity announced it had completed the acquisition of Kohler Energy, a carveout of the global maker of backup power generators and energy resilience solutions from Kohler Co.

Kotzubei cited Vertiv Holdings as an example of Platinum Equity’s carveout success. Initially a $4.2 billion acquisition from Emerson that was rebranded as Vertiv, the company was later merged with a special purpose acquisition company and listed on the New York Stock Exchange (NYSE: VRT).

Vertiv provides critical infrastructure and services for data centers and its market cap has grown to approximately $30 billion. It is currently the most financially successful SPAC transaction ever.

“We identified a market that we thought was a good market, a business that was under optimized in a complex global corporate divestiture where we have a skillset that others didn’t,” he concluded.

It was the 27th annual Milken gathering, and Kotzubei joined a lineup of prominent investment bankers, institutional investors, and celebrities at the bipartisan think tank’s gathering to promote progress and prosperity.