Boring businesses are great for private equiteers because they attract less attention, ergo less competition during sale, ergo lower earnings multiples. I wrote about this in a post titled Boring… but we love boring in private equity. However, there’s a problem with boring businesses… or a consideration, if you will.
A private equiteer’s boring business is also an employee’s boring business. And about the only time employees want to work for a boring business is when they need to be paid while doing other unpaid things (such as studying for school, writing a manuscript or using Facebook). But, this doesn’t nullify the boring business theory, it just poses considerations.
Anything to do with employees must be considered in a different light. Firstly, in a business where passion isn’t obvious (i.e. boring), you can’t expect people to work 80-hour weeks for 40-hour salaries. Secondly, you shouldn’t assume anywhere near as much loyalty. A glue packer will go elsewhere for a 20% pay increase, whereas an F1 engineer may stay even after a 50% pay cut. Lastly, you’ll be limited in terms of the talent pool; a regional GM of Apple won’t accept a CEO role at a glue factory for a 70% pay cut, but they may do so for an internet startup.
However, all is not lost. Focusing on productivity, efficiency and working with what’s available, has been a godsend to many a boring business. Oftentimes, you don’t need the big-name CEOs or loads of employee innovation. Sometimes, you just need a well-oiled machine that supports quick and easy bolt-on acquisitions (and as much as that may make us cringe, it really can create long-term value in boring industries).
P.S. I really don’t like using the word ‘boring’, but let’s not sugar-coat more than we have to.