‘Buyout Lab’ brings private equity expert John Canning to Kellogg

4/3/2008 - A new Kellogg School course is bringing students closer to real-world private equity challenges, providing a hands-on opportunity to understand the leveraged buyout process and work with a private equity firm as part of the class.

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 To celebrate the launch of Buyout Lab, Kellogg invited a distinguished leader to share his insights with students, faculty and staff on April 3. Madison Dearborn Chairman John Canning Jr. discussed his long career in private equity, providing historical perspective on the industry for the benefit of an overflow audience of Kellogg students, faculty and staff.

“You have to be concerned about private equity firms doing things they’ve never done before,” Canning said, citing examples such as taking a minority interest in public companies and taking privately negotiated securities from a public or private company. “These are things that investors have to watch out for and private equity firms have to be tempted not to do.”

Canning entertained the audience with a candid lecture about his industry’s past, present and possible future using technical detail, as well as personal stories and examples. The chairman closed the lecture by discussing issues he believes private equity firms will face going forward, including a hostile environment involving the press, politicians, taxes and unions. He said it is likely that returns will come under pressure, but noted that investor fear and market chaos can also result in investment opportunities.

In introducing Canning, Mitchell Petersen, the Glen Vasel Professor of Finance, stated that Chicago firms in the late 1960s helped create many of the private equity groups that still remain in Chicago and exist nationally. One such group was part of First Chicago, which Canning led and ran inside First Chicago for 10 years. In 1992 he carved it out and started Madison Dearborn Partners.

One of the top firms in management buyouts and private equity, Madison Dearborn principals manage five funds, one of which raised $6.5 billion in 2006. The firm invests in companies in partnership with outstanding management teams to try to achieve significant long-term equity value.

Kellogg Clinical Professor of Management and Strategy Harry Kraemer is an executive partner at Madison Dearborn and has worked closely with Canning. “John is one of the original private equity industry pioneers, with more than 25 years experience,” Kraemer said. “He is a great example of what I refer to in my leadership classes as a ‘values-based leader’ — a person who is self-reflective, balanced and possesses both true self-confidence and genuine humility. The firm that he founded and for which he is now chairman has achieved in excess of a 20 percent compound annual return for almost 20 years.”

With curriculum innovations like Buyout Lab, Kellogg is working to support a new generation of finance leaders, said Dean Dipak C. Jain. He said that the course is designed to give students a rigorous and real-world experience that helps prepare them for a career in private equity. “We continue to find ways to bring theory and practice together and challenge students to dig deeper to develop the analytical and ‘soft’ skills that will make them extraordinary leaders,” said Jain.

Buyout Lab is a quarter-long internship that provides students the opportunity to experience the day-to-day workings of a local fund and allow them to assist with deal selection, due diligence and investment efforts. Kellogg Clinical Professor David Stowell is faculty adviser for the course, which admits students by application only.

The course is designed for students who do not have extensive buyout experience but would like to pursue a career in the field. Those selected dedicate one full day a week to the buyout firm’s office and are expected to dedicate 10-12 hours per week to buyout fund work.