- Human capital. Use specialist to allow deal team to focus on origination and execution
- Discipline. Force rigorous monitoring of operating performance for early warning radar
- Catalyst. Build competencies to push companies to act outside comfort zone
- Rescue. When needed, provide interim resources or intervene
Sunday, October 28, 2007
Value Enhancement Levers
Top Operating Partner Pitfalls to be Avoided
- Divorcing deal team from operational value enhancement
- Lack of committed resources to drive and manage change
- Confusing oversight with management
- Driving conformity by insisting inflexibly on cross-portfolio practices
- Fostering dependency (vs. detachability) of portfolio company
Investcorp Commitment to Add Value Post-Investment
From brochure at http://www.investcorp.com/getDoc.aspx?Doccd=Complete%20Annual%20Repo&Appcd=Pgfi2.5
Investcorp has an ongoing commitment to its investors to protect the value of the investment portfolio by identifying and actively addressing issues at operating companies. Investcorp has a dedicated team of post-acquisition specialists who work with the management of portfolio companies to develop effective strategies, including providing capital support where required. Such support transactions are only entered into after a thorough examination of the risks involved and an independent confirmation that risks are mitigated by the strength of the management teams, new business plans and the companies’ competitive market positions. In turn, the strengthening of the capital structures of these companies helps mitigate the need for additional provisions.v
Investcorp has an ongoing commitment to its investors to protect the value of the investment portfolio by identifying and actively addressing issues at operating companies. Investcorp has a dedicated team of post-acquisition specialists who work with the management of portfolio companies to develop effective strategies, including providing capital support where required. Such support transactions are only entered into after a thorough examination of the risks involved and an independent confirmation that risks are mitigated by the strength of the management teams, new business plans and the companies’ competitive market positions. In turn, the strengthening of the capital structures of these companies helps mitigate the need for additional provisions.v
American Securities Uses Strategy Group to Add Value
From team bios at http://www.american-securities.com/team_ld.php
The ASCP Strategy Group is a resource that ASCP makes available to its portfolio companies, as requested, to help with overall strategy, growing new businesses or product lines and prioritizing the multiple value creating opportunities available to our companies. Mr. Dranikoff joined ASCP in 2003 after spending seven years as a management consultant at McKinsey & Company in New York. During his time at McKinsey & Company, Mr. Dranikoff worked primarily with industrial companies, helping them create and execute growth strategies. Prior to joining McKinsey, he worked as an attorney for Weil, Gotshal & Manges LLP in New York for three years. He holds a JD, cum laude, from Harvard Law School amd a BA and MA in Economics from Johns Hopkins University
Bain Capital on Operational Value Added: Get Active Early
From Knowledge@ Wharton Capital of Driving Returns from Value Added Investing
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1457
"The only way to get value is by helping portfolio companies grow at some rate faster than their competitors," said Dan Haas, leader of Bain & Co.'s Private Equity Group and moderator of a conference panel titled "Operational Value Add." Over time, Bain has discovered several keys to adding value to a portfolio company. First, he said, funds must take an active role and structure deals that suit their own strategy. "What's most important is you get the [deal] right for the size of the fund, the style of investing of the fund and the culture of the fund," he said.
Finally, Haas said, Bain has learned that "early matters." Citing Bain's experience with "hundreds of companies," he noted that "returns on deals where the private equity fund got involved in the first year of ownership performed two times better than when the fund gets involved at a later time."
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1457
"The only way to get value is by helping portfolio companies grow at some rate faster than their competitors," said Dan Haas, leader of Bain & Co.'s Private Equity Group and moderator of a conference panel titled "Operational Value Add." Over time, Bain has discovered several keys to adding value to a portfolio company. First, he said, funds must take an active role and structure deals that suit their own strategy. "What's most important is you get the [deal] right for the size of the fund, the style of investing of the fund and the culture of the fund," he said.
Finally, Haas said, Bain has learned that "early matters." Citing Bain's experience with "hundreds of companies," he noted that "returns on deals where the private equity fund got involved in the first year of ownership performed two times better than when the fund gets involved at a later time."
TPG Adds Operational Expertise in Turnaround; Focus on Reporting
From Knowledge@Wharton conference at http://knowledge.wharton.upenn.edu/article.cfm?articleid=1457
In a turnaround situation, speed and decisiveness are even more important, said Dick W. Boyce, a partner at Texas Pacific Group. In this kind of deal, fund executives are not looking out three to five years, but one year at most. To give managers the data they need to make quick decisions, TPG requires portfolio companies to file weekly flash reports on results and to pay close attention to cash management. Many companies that have not had to cope with the kind of leverage behind private equity investment pay little attention to cash management, Boyce noted. . . .
Boyce noted that TPG also tries to install reporting that focuses on the future. For example, when he was working on a turnaround at J. Crew, he learned that putting a catalog out in front of consumer panels before inventory was ordered allowed managers to predict top sellers 90% of the time. That prevented the company from running short on hot items and getting stuck with excess stock eight or nine months later when the clothes were in stores. "It's crucial to get managers to think about what's the better predictor, rather than being a person looking in the rear-view mirror," he said.
In a turnaround situation, speed and decisiveness are even more important, said Dick W. Boyce, a partner at Texas Pacific Group. In this kind of deal, fund executives are not looking out three to five years, but one year at most. To give managers the data they need to make quick decisions, TPG requires portfolio companies to file weekly flash reports on results and to pay close attention to cash management. Many companies that have not had to cope with the kind of leverage behind private equity investment pay little attention to cash management, Boyce noted. . . .
Boyce noted that TPG also tries to install reporting that focuses on the future. For example, when he was working on a turnaround at J. Crew, he learned that putting a catalog out in front of consumer panels before inventory was ordered allowed managers to predict top sellers 90% of the time. That prevented the company from running short on hot items and getting stuck with excess stock eight or nine months later when the clothes were in stores. "It's crucial to get managers to think about what's the better predictor, rather than being a person looking in the rear-view mirror," he said.
Vestar Formalizes Business Advisory Capabiliies Through Vestar Resources
Excerpt from 9/20/07 press release naming president at http://www.forbes.com/businesswire/feeds/businesswire/2007/09/20/businesswire20070920006019r1.html
Vestar Resources extends support to portfolio company management teams by providing access to expertise in critical strategic areas that helps insure business success and superior returns for all investors. The Vestar Resources team consists of seasoned executives and former management consultants who possess extensive operating experience and strategic insight of the healthcare, industrial, financial services, media and communications, and consumer sectors. Working closely with management, Vestar Resources helps the portfolio company address key issues including maximizing enterprise value, growth and profitability.
From Vestar brochure at http://www.vestarcapital.com/home/Files/Vestar_Brochure_New.pdf
While Vestar relies fully on its management partners to run their businesses, its principals maintain close dialogue with them and serve as an informed resource for strategic, business, and financial judgment. Recognizing that the best advice is often based as much on seasoned operating experience as on sound financial analysis, Vestar formalized its business advisory efforts through the establishment of Vestar Resources, its portfolio monitoring and management arm.
Vestar Resources has assembled a group of senior business executives who have diverse industry backgrounds and extensive hands-on operating experience. These industry veterans can serve as Vestar’s designees on company boards and are often utilized as sounding boards by management teams.
Vestar Resources extends support to portfolio company management teams by providing access to expertise in critical strategic areas that helps insure business success and superior returns for all investors. The Vestar Resources team consists of seasoned executives and former management consultants who possess extensive operating experience and strategic insight of the healthcare, industrial, financial services, media and communications, and consumer sectors. Working closely with management, Vestar Resources helps the portfolio company address key issues including maximizing enterprise value, growth and profitability.
From Vestar brochure at http://www.vestarcapital.com/home/Files/Vestar_Brochure_New.pdf
While Vestar relies fully on its management partners to run their businesses, its principals maintain close dialogue with them and serve as an informed resource for strategic, business, and financial judgment. Recognizing that the best advice is often based as much on seasoned operating experience as on sound financial analysis, Vestar formalized its business advisory efforts through the establishment of Vestar Resources, its portfolio monitoring and management arm.
Vestar Resources has assembled a group of senior business executives who have diverse industry backgrounds and extensive hands-on operating experience. These industry veterans can serve as Vestar’s designees on company boards and are often utilized as sounding boards by management teams.
Subscribe to:
Posts (Atom)