Private Equity Value Creation Archives

7 05, 2019

IoT: How Much Steak, How Much Sizzle?

By Simon|2019-05-07T11:07:47+00:00May 7th, 2019|Internet of things, Private Equity Value Creation|

When it comes to the Internet of Things (IoT) and its applicability to creating value in the products and services of lower middle (LMM) and middle market (MM) industrial companies, is it all sizzle and no steak? It’s a critical question, because these markets can’t survive on sound and scent alone – they neat to add real meat to their bottom lines.

The question has come up more than a few times during my travels in Europe and the U.S., and it’s been flavored still more (clearly, food is on my mind) by the rapid IoT-supported evolutions in the electric vehicle, electric utility (smart metering), vehicle / asset tracking, and marine industries. Today, for example, there are more than 200 million smart electric meters installed worldwide and that number is growing – rapidly.

Which is why I believe we’re moving beyond the sizzle and are going to start seeing IoT built into future LMM and MM revenue projections, as they incorporate IoT into their product and service line strategies. I think that we are […]

3 03, 2019

Using the 4W Framework to Rationalize IoT Investments

By Simon|2019-05-03T08:52:05+00:00March 3rd, 2019|Internet of things, IoT, Private Equity Value Creation|

Developing IoT solutions for existing product lines is increasingly important to industrial companies of all sizes and scopes, primarily because they’re seen as important value-adds without the need to reinvent the wheel itself.

One example: manufacturers are adding sensors to their devices in order to provide customers with a preventative maintenance service – the product is monitored and, when necessary, serviced, without inconveniencing the customer. The result: no disruptive field failures, the product’s service life is extended, and by extension the brand enjoys a stronger affinity from the customer.

That’s the theory, anyway.

IoT Potential vs. Reality

Because we live in an era with virtually unlimited potential for imagining digital tools and the connective networks that bind them, industry is faced with a difficult decision: while IoT devices sound good in theory, how do you know if an IoT investment actually makes sense?

To answer that question, we recommend answering four key questions about the users (and uses) of the IoT product prior to actual development and deployment. We’ve bundled these into what we call the 4W […]

19 12, 2018

3 Steps to Building a Successful Platform Play

By Michael|2018-12-19T14:00:00+00:00December 19th, 2018|Operating Partners, Private Equity Value Creation|

With more than a trillion dollars of dry powder waiting to be put to work, buyers are eager to identify and close new deals in order to put capital to work. But as valuations have risen and EBITDA multiples have flattened, it has become essential that funds adopt a structured plan for implementing operational improvements and value creation at their portfolio companies.

Under these conditions, platform roll-ups have become an important tool in building portfolio value. But a platform is more than a collection of companies in the same general business. Building a successful platform requires rigorous planning and diligence and careful selection of add-on acquisitions based on deliberate and structured diligence and post-merger integration plans.

Conversely, without careful integration planning and implementation, a platform is no more valuable that the collection of assets that was acquired.

The Investment Thesis

Planning a platform starts after formulating an investment thesis. The thesis generally determines that value can be created in some largely fragmented industry by combining one or more of its players. It’s important to remember that […]

10 10, 2018

A New Formula for PE Deal Success – The Fractional CFO – Outliers LLC

By Doug|2018-10-10T10:00:56+00:00October 10th, 2018|Operating Partners, Private Equity Value Creation|

The private equity formula is simple. PE investors expect their portfolio CEOs to drive positive, measurable changes that led to healthy exit options. In a majority of cases, however, that formula is being turned on its head, with the exits coming from the CEOs themselves (73% of them, to be exact) along with corresponding hits on costs, valuations, and plan goals.

Clearly, the formula needs to change, particularly in an era when mounting deal pressures and lengthening hold periods are creating a kind of perfect storm that could result in even more CEOs heading toward the exits.

How best to change the formula? By creating a targeted, tailored support structure that fully empowers and supports CEOs to lead their enterprises through their transformation plans – a structure that acts like a three-legged stool.

A Three-Legged Stool

Based on our years of experience in the PE arena, we believe today’s portfolio CEO needs targeted, tailored modes of support that, collectively, enable them to drive the kinds of enterprise transformation investors want.

You can think of this new […]

5 09, 2018

A New Formula for Creating PE Deal Value, Stability

By Simon|2018-12-19T10:03:43+00:00September 5th, 2018|Operating Partners, Private Equity Value Creation|

The private equity formula is simple. PE investors expect their portfolio CEOs to drive positive, measurable changes that led to healthy exit options. In a majority of cases, however, that formula is being turned on its head, with the exits coming from the CEOs themselves (73% of them, to be exact) along with corresponding hits on costs, valuations, and plan goals.

Clearly, the formula needs to change, particularly in an era when mounting deal pressures and lengthening hold periods are creating a kind of perfect storm that could result in even more CEOs heading toward the exits.

How best to change the formula? By creating a targeted, tailored support structure that fully empowers and supports CEOs to lead their enterprises through their transformation plans – a structure that acts like a three-legged stool.

A Three-Legged Stool

Based on our years of experience in the PE arena, we believe today’s portfolio CEO needs targeted, tailored modes of support that, collectively, enable them to drive the kinds of enterprise transformation investors want.

You can think of this new […]

19 06, 2018

Building a Board that Works for Middle Market PE Firms

By Simon|2018-06-05T10:03:09+00:00June 19th, 2018|Operating Partners, Private Equity Value Creation|

High asset prices have placed enormous pressures on middle market private equity management teams to execute ‘the plan.’ While we previously focused on how an Operating Partner can help prevent the epidemic in CEO turnover plaguing many such operations, in this post we want to talk about an equally important component of the equation: identifying and building an effective Board of Directors.

It goes without saying that the BoD is critical in ensuring investor returns. And while the nature of the BoD roles and where they should invest their time and energies are somewhat dependent on the circumstances of the deal and the nature of the value creation plan, there are four areas the BoD upon must focus on irrespective of the deal nature:

Governance
Plan Execution
Strategy Formulation
Human Capital Development

Each of these areas requires some time and attention to assure the prosperity of the firm.

However, at its most extreme (or worst), the BoD expends a disproportionate amount of effort on plan execution and governance. And while plan execution is clearly […]

5 06, 2018

Making the Case for – or Against – IoT for Mid-Market Manufacturing

By Simon|2018-06-05T10:10:10+00:00June 5th, 2018|Private Equity Value Creation|

The rapidly falling costs of sensors and cloud-based storage have more than a few B2B industrial companies wondering if it’s time to add sensors to their products, thereby opening new data (and revenue) streams.

IoT is, of course, big business. Discrete Manufacturing, Transportation and Logistics, and Utilities will lead all industries in IoT spending by 2020, averaging $40B each and Bain predicts B2B IoT segments will generate more than $300B annually by 2020, including about $85B in the industrial sector.

Which may be why I’m sensing a growing level of uneasiness over IoT strategies within the ranks of privately owned middle market companies (assuming those strategies exist at all).

And who can blame them for eyeballing a piece of that considerable pie, particularly when faced with the incessant pressure to generate investor returns? Add some sensors, capture the data and, lo and behold, a new revenue stream is born, right?

Maybe.

The potential of IoT

Given the industry’s mounting interest in IoT and having personally worked with major public […]

4 04, 2018

How to Solve CEO Turnover in PE Companies

By Doug|2018-08-07T10:48:36+00:00April 4th, 2018|Operating Partners, Private Equity Value Creation|

A majority of the CEOs tasked with transforming PE portfolio companies into lucrative exits are instead being replaced within the first two years of the investment, thereby putting both the reality of those plans and their timetables in real jeopardy. Meaning that solving CEO turnover in PE companies is critical to industry success.

That is the consensus of a recent PE industry survey, which also suggests that much of this executive churn could be avoided through a more intelligent approach to due diligence, planning and managing the relationship between the CEO and ownership.

To those of us with significant PE-CEO experience, what’s most surprising about the survey isn’t its results but rather that anyone should be surprised by them at all. Replacing a portfolio company CEO may be a necessary evil but the IRR implications for PE funds are significant.

The Risks of CEO Churn

Today’s high asset prices are placing increased pressures on PE investments, requiring focused, steadfast approaches to value creation that quite naturally depend on an effective CEO and leadership team. Which is why […]