For private equity investors, the quest for profitable deals is a perpetual pursuit, and with good reason. The strategy has long been recognized as one of the most lucrative investment channels. A number of them have cracked the code of this enigmatic landscape, harnessing the power of strategic moves and astute investments to unlock unimaginable profits.
Let’s look at the private equity case studies of two companies, an emerging tech giant and a pet food industry disruptor, to shed light on the strategies and factors that contributed to their successful private equity deals.
Year: 2012
Buyer: Sutter Hill Ventures (SHV)
Investment: $200 million
Duration: Ongoing
Current value: $12.6 billion
This private equity case study exemplifies how otherwise overlooked companies can defy expectations, yielding substantial returns for investors with the foresight to recognize their potential.
Snowflake, a cloud data company, was a relatively unknown player in the Silicon Valley tech scene that went on to have one of the most talked-about initial public offerings (IPOs) of 2020.
Several factors contributed to its unprecedented growth. First, the company leveraged the rising demand for cloud-based data solutions, providing scalable and flexible data solutions that resonated with businesses across industries.
Additionally, Snowflake had a strong management team and is still led by its visionary founders. That inspired confidence in the investors and played a crucial role in this private equity deal’s success.
Sutter Hill Ventures (SHV) recognized the rising demand and business opportunity in the cloud data warehousing space. Helping companies store, share, and analyze data across the cloud was becoming a critical need in the digital age.
Unlike in most private equity case studies, SHV was involved with Snowflake from its early days. Its managing director, Mike Speiser, served as Snowflake’s CEO and CFO, providing valuable insights and guidance in developing the product and building a strong team. The VC firm’s total investment was valued at less than $200 million for a 20.3 percent stake before going public.
Snowflake's IPO debut was nothing short of a blockbuster event. The company's first day of trading propelled its market capitalization to approximately $70 billion, far exceeding expectations.
This surge in share price resulted in a $12.6 billion valuation of SHV’s stake in the company. Other notable investors were Altimeter Capital, ICONIQ Capital, Redpoint Venture, and Sequoia Capital, which all realized significant returns of over $5 billion after the IPO.
Year: 2006
Buyer: Invus Group
Investment: $59 million
Duration: 12 years
Return value: $5 billion
Bigger isn't always better with private equity investing — even “small” private equity deals have reaped historical returns, and not just in the tech world.
One such private equity case study is the transformative journey of Blue Buffalo, a pet food company, under the guidance of private equity firm Invus Group.
Blue Buffalo was born out of a heartfelt story when Blue Buffalo’s founders lost their dog, Blue, to cancer in 2003. Driven by a desire to improve pet nutrition, the family embarked on a mission to create a premium pet food brand using healthy ingredients. They were also aware of the emerging trend of health-conscious pet owners seeking alternatives to chemical-laden products.
In 2006, Invus Group recognized the potential in Blue Buffalo's vision and the thriving pet products industry. With a strategic investment of $59 million, Invus Group became a vital partner in Blue Buffalo's journey. Their financial backing and guidance drove exponential growth, propelling Blue Buffalo's sales from $13 million in 2006 to a remarkable $1.1 billion by 2016. This firmly established the company as a significant player in the pet food market.
Invus Group's patient, long-term approach paid off handsomely and Blue Buffalo achieved a successful IPO in 2015. This caught the eye of multinational food company, General Mills, which acquired the company for $8 billion in 2018.
Invus's investment of $59 million over 12 years generated an astounding return of 84 times, translating into $5 billion in profits and an impressive internal rate of return (IRR) of 51 percent.
Blue Buffalo's journey serves as a remarkable private equity case study of the value of strategic investment and operational improvements.
As these private equity deals show, opportunity awaits those who are willing to dive into the private capital market. The key lies in recognizing the potential of businesses in a wide range of sectors and partnering with them to unlock their true value.
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