Private Equity Seeks New Applications in Tech Choices

Managers of private equity funds are not necessarily looking to invest in successful tech firms, they’re searching for “broken pieces” that have not yet been utilized effectively, according to C. S. Park, ’82, a member of the board of directors of Seagate Technology. “Mostly they are looking for some hidden assets—‘hidden’ meaning resources that are not untapped, but have not found a home for new applications,” Park said.

He gave the afternoon keynote address at the 2007 TechVision Conference, which was presented by the student-led High-Tech Group at the Charles M. Harper Center on May 11. Other speakers participated in panel discussions on innovation and marketing in the high-tech world.

“The technology is there. The question is how to capitalize on it,” he said. “In fact, I’m not aware of any of these companies who are looking for innovative technologies. They are looking for the companies that have those innovations already but didn’t fully capitalize on them.”

When private equity is invited to the table, shareholders may ask why the company is asking them to give up future value by selling off to private equity, Park said. Others may argue that primarily management will get very rich if private equity is successful, he said.

“I think they are missing the point,” Park said. “Private equity is very good at looking at the gap between what we have and what we have the potential to achieve. Private equity is very good at handling structural and management gaps. They do not waste any time finding management—often retired executives—who can see past what current management may be unable to see because of their tunnel vision for the company.”

It is possible that private equity managers may drive valuations so high that another technology bubble is created, but those are not the type of investors looking for quarterly numbers, he said. “They will say they are looking over the long haul, a few years,” Park said. “But valuation is becoming a much tougher issue. The jury is still out. Some recent transactions were very high priced, so it’s going to be interesting to see.”

As electronic technology becomes more commoditized, its products are increasingly reliant on software companies to supply features to help sell them, he said. “In our company, we created a very strong retail channel by working with a lot of small companies,” Park said. “Absolutely, software is a key component in terms of creating more value. For example, Hewlett-Packard has great hardware, but they usually involve some kind of software that really gives them an edge. They need to exercise a lot of added value.”

The High-Tech Group invited Park to speak because of his experience with a broad range of companies both in technology and private equity, said first-year student Jeremy Perlman, co-chair. “It’s very relevant to think about the way the technology sector is changing, as well as the way private equity is changing many different industries within business,” Perlman said. “It was very interesting to hear what private equity funds are looking at in technology and how they go about restructuring and creating increased value for shareholders.”

�Phil Rockrohr