Executing value creation plans to maximize returns

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Executing value creation plans to maximize returns
Hosted by Ernst & Young LLP Transaction Advisory Services

Publication date: Tuesday, 2 April 2013

Leading private equity firms are maximizing investment returns by developing value creation insights before making a purchase, and executing a value creation plan from the beginning of the holding period through to exit.

Companies that faithfully execute their value creation plans throughout the investment lifecycle can enhance returns and outperform their peer group when they sell.

A panel of Ernst & Young LLP professionals and special guests discussed:

Value creation drivers
Possible steps for maximizing returns at exit

You are welcome to join the on-demand version of this interactive discussion by going to: http://bit.ly/Xj4EIA
This webcast is part an ongoing series. Register for any webcast and you will be asked if you want to receive invitations to future webcasts.

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Executing value creation plans to maximize returns

  1. 1. Executing value creationplans to maximize returns2 April 2013
  2. 2. Disclaimer► This presentation is ©2013 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young and its member firms expressly disclaim any liability in connection with use of this presentation or its contents by any third party.► The views expressed by panelists in this webcast are not necessarily those of Ernst & Young LLP.► These materials contain summary information for general guidance only. Neither Ernst & Young LLP nor any other member firm of the global Ernst & Young organization accepts any responsibility for loss suffered by any person acting or refraining from action as a result of any information contained herein. On any specific matter, appropriate advisors should be consulted. Ernst & Young Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com. Ernst & Young LLP is a member firm serving clients in the US.© 2013 Ernst & Young LLP Page 2 Executing value creation plans
  3. 3. Today’s moderator Kerrie MacPherson Ernst & Young LLP Financial Services Office, Advisory Join todays Twitter discussion: #EY_ValueCreation© 2013 Ernst & Young LLP Page 3 Executing value creation plans
  4. 4. Today’s agenda ► Private equity market environment ► PE value creation framework ► Creating value across the investment lifecycle Join todays Twitter discussion: #EY_ValueCreation© 2013 Ernst & Young LLP Page 4 Executing value creation plans
  5. 5. Today’s presenters ► Bob Nardelli XLR-8 LLC, Investment & Advisory Company Founder ► Jeffrey Bunder Ernst & Young Organization Global Private Equity Leader ► Tom Taylor Ernst & Young LLP Senior Managing Director Private Equity Value Creation Advisory The information contained herein is a summary in nature. Viewers should consult their own professional advisors to address their individual circumstances and concerns.© 2013 Ernst & Young LLP Page 5 Executing value creation plans
  6. 6. Fact check Which of the following do you represent? A. Private equity B. Publicly-traded corporation C. Private equity investee D. Other© 2013 Ernst & Young LLP Page 6 Executing value creation plans
  7. 7. Today’s agenda ► Private equity market environment ► PE value creation framework ► Creating value across the investment lifecycle Join todays Twitter discussion: #EY_ValueCreation© 2013 Ernst & Young LLP Page 7 Executing value creation plans
  8. 8. Private equity activity $1,200 Acquisitions ExitsDeal value ($US billions) $1,000 $800 $600 $400 $200 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD YTD 2012 2013 Sources: Dealogic through 29 February 2013 – includes sponsor-backed acquisitions; excludes repurchases, spinoffs, splitoffs and add-ons; S&P LCD, February 2013 release. Purchase price multiple calculated using average purchase price divided by adjusted earnings before interest, taxes, deduction and amortization (EBITDA). Debt multiples calculated using average debt-to-adjusted EBITDA ratio for leveraged buyout (LBO) transactions for companies with EBITDA greater than US$500m. © 2013 Ernst & Young LLP Page 8 Executing value creation plans
  9. 9. US leveraged loans and high yield $350 Leveraged loans High yield $300 $250 US $ billions $200 $150 $100 $50 $0 Source: S&P Leveraged Commentary and Data M&A Stats, February 2012 and February 2013 release.© 2013 Ernst & Young LLP Page 9 Executing value creation plans
  10. 10. Why value creation initiatives matter now► Use of leverage for value Holdings by vintage year creation has declined 2012► Multiple arbitrage has less 7% potential 2011► Assets have been purchased at 16% 2007 relatively high valuations and 2010 prior► Holding periods are longer 45% 12% 2009 7% 2008 13% Of 6,882 portfolio companies, 45% were acquired in 2007 or prior© 2013 Ernst & Young LLP Page 10 Executing value creation plans
  11. 11. Today’s agenda ► Private equity market environment ► PE value creation framework ► Creating value across the investment lifecycle Join todays Twitter discussion: #EY_ValueCreation© 2013 Ernst & Young LLP Page 11 Executing value creation plans
  12. 12. Opinion check What is the primary focus of your (or your client’s) value creation initiatives? A. Revenue enhancement B. Margin improvement C. Capital efficiency© 2013 Ernst & Young LLP Page 12 Executing value creation plans
  13. 13. How leading private equity firmsare creating value Other 3% Cost reduction drivers 40% Acquisitions 27% 23% 25% 6% 4% Operational Procurement Improved HQ overhead Capacity Cost efficiency financial adjustments systems and reductions controls 29% Organic revenue growth drivers 26% 24% 20% Organic 17% 13% revenue 42% Geographic Price Market Change of New products expansion increases and demand offering improved selling© 2013 Ernst & Young LLP Page 13 Executing value creation plans
  14. 14. Value creation framework Strategic alignmentPE expectations Portfolio Market and Portfolio of portfolio/ commercial regulatory capital agenda exit strategy strategy requirements Value creation drivers Revenue Margin Capital efficiency enhancement improvement Value creation enablers IT systems/ Business Risk Operations People tools intelligence management capability© 2013 Ernst & Young LLP Page 14 Executing value creation plans
  15. 15. Revenue enhancement Value creation drivers Revenue Margin Capital efficiency enhancement improvement► Pricing and promotions► Marketing effectiveness► Channel strategy► Mergers and acquisitions► Geographic expansion► Account management► Sales force effectiveness© 2013 Ernst & Young LLP Page 15 Executing value creation plans
  16. 16. Margin improvement Value creation drivers Revenue Margin Capital efficiency enhancement improvement► Strategic sourcing► Procurement transformation► Manufacturing strategy► Plant productivity improvement► Logistics cost reduction► Organizational design► Overhead cost reduction► Finance transformation© 2013 Ernst & Young LLP Page 16 Executing value creation plans
  17. 17. Capital efficiency Value creation drivers Revenue Margin Capital efficiency enhancement improvement► Working capital improvement► Fixed asset optimization► Capital expense optimization► Restructuring/divestment► Liquidity enhancement© 2013 Ernst & Young LLP Page 17 Executing value creation plans
  18. 18. Value creation framework Strategic alignmentPE expectations Portfolio Market and Portfolio of portfolio/ commercial regulatory capital agenda exit strategy strategy requirements Value creation drivers Revenue Margin Capital efficiency enhancement improvement Value creation enablers IT systems/ Business Risk Operations People tools intelligence management capability© 2013 Ernst & Young LLP Page 18 Executing value creation plans
  19. 19. Today’s agenda ► Private equity market environment ► PE value creation framework ► Creating value across the investment lifecycle Join todays Twitter discussion: #EY_ValueCreation© 2013 Ernst & Young LLP Page 19 Executing value creation plans
  20. 20. Opinion check At what point in the investment lifecycle do you (or your client) think about value creation ? A. Origination B. Diligence C. Holding period D. Exit© 2013 Ernst & Young LLP Page 20 Executing value creation plans
  21. 21. Creating value across the investmentlifecycle Pre- Holding period Exit purchase Value ValueDiligence/ Implementation Exit creation creation insights and monitoring readiness plan refresh Foundation for Critical to achieving Helps enhance exit purchase decision investment thesis valuation and and holding period expedite close initiatives© 2013 Ernst & Young LLP Page 21 Executing value creation plans
  22. 22. Pre-purchaseDiligence/ insights► Value creation insights on performance issues and upside opportunities► Diligence insights► Value creation plan© 2013 Ernst & Young LLP Page 22 Executing value creation plans
  23. 23. Holding period Value Implementation creation and monitoring plan► Focus on revenue growth, margin improvement and capital efficiency► Strengthen analytics, operations and controls► Develop metrics and monitoring processes Executing sustainable value creation initiatives is critical to achieving the investment thesis© 2013 Ernst & Young LLP Page 23 Executing value creation plans
  24. 24. Exit Value Exit creation readiness refresh ► Value creation refresh ► A road map for the next buyer ► Pre-sale readiness ► Communication preparation Value creation initiatives led to an 8.7% weighted-average EBITDA CAGR for recently exited portfolio companies, according to an EY study© 2013 Ernst & Young LLP Page 24 Executing value creation plans
  25. 25. Recap One- minute recap© 2013 Ernst & Young LLP Page 25 Executing value creation plans
  26. 26. Resources Log onto: www.ey.com/privateequity Facebook: Ernst & Young transactions© 2013 Ernst & Young LLP Page 26 Executing value creation plans
  27. 27. Thanks for participating! Executing value creation plans to maximize returns
  28. 28. Connect with us Follow us on Twitter @EY_Webcasts Watch us on YouTube Search on Ernst & Young webcast© 2013 Ernst & Young LLP Page 28 Executing value creation plans

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