More Related Content Similar to Executing value creation plans to maximize returns (20) Executing value creation plans to maximize returns2. 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. Today’s moderator
Kerrie MacPherson
Ernst & Young LLP
Financial Services Office, Advisory
Join today's Twitter discussion:
#EY_ValueCreation
© 2013 Ernst & Young LLP Page 3 Executing value creation plans
4. Today’s agenda
► Private equity market environment
► PE value creation framework
► Creating value across the investment lifecycle
Join today's Twitter discussion:
#EY_ValueCreation
© 2013 Ernst & Young LLP Page 4 Executing value creation plans
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. 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. Today’s agenda
► Private equity market environment
► PE value creation framework
► Creating value across the investment lifecycle
Join today's Twitter discussion:
#EY_ValueCreation
© 2013 Ernst & Young LLP Page 7 Executing value creation plans
8. Private equity activity
$1,200 Acquisitions Exits
Deal value ($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. 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. 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. Today’s agenda
► Private equity market environment
► PE value creation framework
► Creating value across the investment lifecycle
Join today's Twitter discussion:
#EY_ValueCreation
© 2013 Ernst & Young LLP Page 11 Executing value creation plans
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. How leading private equity firms
are 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. Value creation framework
Strategic alignment
PE 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. 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. 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. 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. Value creation framework
Strategic alignment
PE 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. Today’s agenda
► Private equity market environment
► PE value creation framework
► Creating value across the investment
lifecycle
Join today's Twitter discussion:
#EY_ValueCreation
© 2013 Ernst & Young LLP Page 19 Executing value creation plans
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. Creating value across the investment
lifecycle
Pre-
Holding period Exit
purchase
Value Value
Diligence/ 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. Pre-purchase
Diligence/
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. 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. 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. Recap
One-
minute
recap
© 2013 Ernst & Young LLP Page 25 Executing value creation plans
26. Resources
Log onto: www.ey.com/privateequity
Facebook: Ernst & Young transactions
© 2013 Ernst & Young LLP Page 26 Executing value creation plans
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