‘Buy, strip, sell’ days numbered

Cerberus Capital Management’s planned takeover of Chrysler Group marks a power shift on Wall Street as private equity firms transform not only their image, but how – and why – big deals get done.

By making bigger and more complex deals, buyout shops are thinking more like Wall Street investment banks, broadening their strategy from the days when they were known for buying up companies, slashing costs and then putting them back on the market.

With Chrysler, Cerberus is talking about rejuvenating an ailing brand, not about its exit strategy.

“Private equity must now become real about the business of running businesses,” said Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business. “The days of buy, strip, and sell are numbered.”

John Snow, the former Treasury secretary who is now Cerberus’ chairman, has made it clear the firm wants to revive the Chrysler brand. Cerberus is paying Daimler-Chrysler $7.4 billion for a controlling stake in the U.S. automaker, and is arranging $62 billion more in financing for its overhaul.

It also fits into Cerberus’ overall strategy in the auto industry, where it controls a number of companies. That is an important shift, analysts said. Before, it was common for private equity firms to manage a portfolio of completely diverse companies. Now, many are forming their portfolios around specific sectors with a goal to become true industry players.