Paul Greenberg on why private equity doesn’t have to be impersonal

It’s been 10 months James Packer-backed Ellerston Capital bought a third of Australian online retailer Deals Direct, and the e-retailer’s co-founder, Paul Greenberg, couldn’t be more pleased.

“Our relationship with our capital partners has been absolutely incredible,” he told LeadingCompany last Friday after announcing Deals Direct’s latest e-retailing acquisition. “It’s been a very powerful, collegial, supportive relationship. We feel very much on the same side.”

His positive experience is encouraging given the high number of Australian companies currently being approached by private equity firms. Recent weeks have seen high-profile negotiations between private equity and Pacific Brands, and analysts have pointed to Billabong, Specialty Fashion and Harvey Norman as other likely targets. For those with capital to invest, the languishing ASX 200 provides plenty of opportunities.

But private equity’s reputation has been tarnished in recent months by the experience of firms such as Myer and Collins Foods, whose share prices have languished after private equity made its exit.

Greenberg says he had “read the script [and] heard the horror stories” about private equity.

Nonetheless, Deals Direct was actively looking for investment at the time of the approach.

“The founding shareholders had a good sense to recognise that growing a business has different stops along the way,” he says.

“They contacted us, and they weren’t the only ones. The online retail space is quite hot at the moment.

“I haven’t had experience with external capital before, and I heard some stories that were challenging, but there are always two sides to the coin. Their pitch was perfect, they liked what they saw in us, and nearly a year into it … they’ve been absolutely faultless.

“Honesty at the front door is critical, like any relationship. Many businesses go in with a glossy view of their business… and it doesn’t work out [when it isn’t shared]. That’s the advice I would give.”

Of the four largest e-commerce players in the Australian market (Deals Direct, Catch of the Day, OzSales and GraysOnline), two have relationships with off-shore private equity funds.

Ellerston Capital, however, is a Sydney-based fund, and for Greenberg this was important. Despite getting offers from large international firms, he says Ellerston’s track record in Australia clinched the deal.

“I’m thrilled we have partners who dine in the city, who I can have coffee with five days a week if I want to, who understand Australian conditions.”

Greenberg also approved of how Ellerston raised its funds.

“They went to a small group of highly credentialed, experienced investors in the technology field,” he says.

Those investors have now become Deals Direct’s brains trust.

“We all know how much consultancy costs,” says Greenberg. “I’ve got a black book of highly-talented, highly-credentialed entrepreneurs. And that’s gold – I can call them up and ask ‘What would you do?’”

“That was the big thing. Private equity tends to have a reputation for being impersonal. With Ellerston Capital, it was exactly the opposite. It was a highly personal approach. It wasn’t a call from a faceless New York Wall Street type… it was the real deal.”


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