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THE OPERATING
PARTNER IN
PRIVATE EQUITY
Advanced strategies for value creators
CONTENT HIGHLIGHTS:
• Dan Colbert discusses how The Riverside Company built
and refined its operating approach with key lessons for
achieving success.
• Scott Glickman, Dan Soroka and Sara Boyd of Graham
Partners outline a programme for proactively identifying
and reducing business model risks.
• Mark Gillett of Silver Lake Partners and David Moss,an
independent adviser,provide a framework for assessing and
implementing transformational versus incremental change.
• Sandy Ogg of The Blackstone Group, proposes three
action points for ensuring the portfolio company CEO
search and selection process is successful.
• Matt Sondag of West Monroe Partners provides useful
tips for how to select and optimise the emerging role of
the IT operating partner.
…plus much more
VOLUME 2
SPECIAL OFFER TO SUBSCRIBERS:
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SAMPLE CONTENT
AVAILABLE ONLINE
3. 1october 2015 operational excellence special 2015
Changing values
Welcome to our fourth annual Operational
ExcellenceAwards Special, and while we’re at
it,our heartiest congratulations to all 12 win-
ners revealed within it.This is the publication
where we collect and celebrate the very best
stories of private equity value creation from
across the globe.
It reveals how GPs added transformational
value to the companies they bought,and then,
in the very best cases, future-proofed them
before they were sent off, better equipped to
deal with the vagaries of a rapidly changing
world.
Theme sound familiar? Well it should. At
the risk of being repetitive,operational excel-
lence should lie at the heart of the private
equity proposition. The days of buying a firm,
leveraging it to the hilt and then selling it on
at a huge multiple for relatively little effort
are (hopefully) long gone.The global financial
crisis should have put paid to that particular
business model.
We hope you will forgive us for stressing
the point once again, (p. 4), but in an ever
more competitive business environment,there
really is no time like the present to showcase
the skills that make your firm really stand out
from the crowd.
For all our awards entrants, not just the
winners,we say thank you.We appreciate that
filling out often intricately-detailed timelines
and collating a disparate set of metrics takes
time.We certainly appreciated that fact when
we sifted through every single one of them.
We received a very healthy selection of
awards entries from GPs in the Americas,
EMEA andAsia-Pacific regions, and what was
particularly encouraging was that our battle-
hardened panel of 11 expert judges told us
they had found it genuinely tough to select
the winning entries in each of the categories.
That is testament to those GPs out there that
demonstrated to us that they achieved true
operational excellence for their portfolio
companies.
Of course,there are a number of operating
partner models out there that GPs can deploy,
but as our feature on p.8 points out,whichever
one is chosen, transparency and open, honest
dialogue between the GP,its investors and the
portfolio company management team is para-
mount to its success.
And if your operating partner model
involves working as a minority partner, our
feature on p. 14 examines the intricacies of
trying to drive the value-creation process,
even when you are not the one behind the
company wheel.
We have examples of a number of just such
successful partnerships within this special sup-
plement, and while there is nothing wrong
with trumpeting their success,as hopefully we
do within these pages, no GP can ever afford
to rest on its laurels.
Against a fast-changing backdrop of dis-
ruptive technology and with ever greater
competition for LP assets, continuing to be
able to diversify and differentiate your offer
should be front and centre for every GP.
Our awards supplement reveals a number of
GPs that are doing just this, because standing
still is simply not an option in today’s world.
Enjoy the supplement,
Matthew Goodburn
ISSN 1474–8800
OCTOBER 2015
e: matthew.g@peimedia.com
MATTHEW
GOODBURN
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5. Culture is important, but how do you measure and manage it?
Humatica works with leading private equity investors and their
portfolio companies to make high-impact changes in the way
they are organised and managed. Our hard-facts approach
enables leaders to dispel complacency and unlock the value
of their business.
Delivering a performance culture
6. 4 private equity international october 2015
OVERVIEW
Pushing the boundaries
For GPs hoping to attract investors to their funds, value-creation capabilities are no longer
optional.However, adding expertise is not the end of the story — GPs should be pushing
value creation into new frontiers, writes Isobel Markham
OPERATIONAL EXCELLENCE
Looking across today’s private equity land-
scape you would be hard pushed to find
a firm that did not make any mention of
operational capabilities in their value crea-
tion manifesto.
“Everyone today,at least on the surface,
proffers some operational capability,” says
Graeme Gunn, a partner at SL Capital in
Edinburgh.
John Gripton, a managing director and
chairman of the global investment commit-
tee at Capital Dynamics,sees a vast change
in the last decade, spurred by a tougher
environment for investing.
“It’s gradually improved and there has
been much more focused on operational
work, especially as growth has been much
more difficult to achieve. Managers are
looking to maintain the level of return for
limited partners and clearly their carry also
depends on it,” he says.
“If you are going to grow a company –
and growth is essential if you’re going to
make the returns we’re looking for – then
I think a private equity manager has to have
that expertise to offer the management of a
company,so that they can work with them
and move the business forward.”
In August, EQT closed its seventh
buyout fund on its €6.75 billion hard-cap.
Christian Sinding, a partner and head of
equity at the firm, says EQT’s so-called
“industrial” approach to private equity,
focusing on long-term growth and deve-
lopment of companies,is a key selling point
to investors.
According to the firm, almost all of the
return on EQT’s investments is attribut-
able to operational improvements such as
increased sales and efficiency gains.
“Investors are looking for a value crea-
tion model that is replicable, that you can
explain and that makes sense,”Sinding says,
adding that the era of hands-off private
equity is over.
“There is too much at stake for you to
just be able to leave the company there to
fend for itself,” he says.
WORKING HARDER
In today’s post-crisis world, the combina-
tion of low growth and high prices means
“there’s no free lunch”, says Francesco di
Valmarana, a partner at Pantheon focused
on European primary and secondary
investments. Some element of operational
capability is a “must-have”.
“The companies that are able to be
bought by private equity firms today at
a price that is interesting de facto come
with requirements for heavy lifting, either
internally or externally, in terms of assis-
ting with sales and distribution and market
penetration for instance,”di Valmarana says.
Gunn also refers to operational capabili-
ties as a must-have,pointing out that private
equity firms need to work their companies
harder than ever to create solid returns.
“If you’re looking for a weighting, I
would say it’s as important as a group’s track
record for us, that they can demonstrate a
real operational capability,” Gunn says.
Investors are
looking for a
value creation
model that is replicable,
that you can explain and
that makes sense
Christian Sinding
››Gripton: more focus on operational work
7.
8. 6 private equity international october 2015
OVERVIEW
“It’s all very well in an upcycle; you
buy something,sell it for a bigger multiple,
and everybody’s happy. But the real proof
has been around when things get tougher
for the company and for sectors as a whole,
how does that business respond? Does the
operational work that the manager has
instigated in its portfolio really allow the
fund to be able to achieve good returns even
in a down cycle?”
Operational capabilities are not just
attractive to investors;management teams
also look for backers that are going to pro-
vide the best value-add, says Gripton.
“If you’re the management team of the
company and you’re able to influence which
private equity manager you’re going to part-
ner with for a buyout, then you’re going to
look at a manager who has demonstrated
they can support companies to generate
growth. You don’t want a manager who is
just involved in cost-cutting.”
THE NEXT PHASE
With investors seeking to consolidate their
manager relationships,the pressure on GPs
to differentiate themselves is increasing.Just
adding operating partners to a team is no
longer enough; along with incorporating
operational capabilities, managers need to
show that they’re pushing these capabilities
to the next level.
“The one area that we are pushing
people on a bit is there’s a lot of disruptive
business models out there now, the Ubers
the Airbnbs,” says Gunn. “We have seen
a few funds focusing on this, bringing in
strategic people on deals to ask, ‘Is there
a disruptive technology here that’s going
to kill my company in three to five years?’
We’re interested in that as a concept and
as an investor.”
At the Operating Partners Forum
Europe in London inApril,EQT managing
partner Thomas von Koch told delegates
that thanks to these disruptive technologies
and business models he’s “not sleeping too
well at night”.
“The world is changing now. And I’m
too old to see it,” Von Koch said,citing the
example of EQT portfolio company Scan-
dic, a hotel chain in the Nordics, which
has seen its top line come under threat
from online accommodation booking site
Booking.com.The firm has since brought a
number of experts in disruptive technolo-
gies into its network of industrial advisers.
“They see it, and all the guys around
them see it,” Von Koch said. “That’s actu-
ally a necessity for us to succeed in the
future. Paranoia, unfortunately, is one of
the first things we have on the top of our
whiteboard.”
Another strategy that interests SL Capi-
tal is European funds establishing networks
in Asia to help grow and expand their port-
folio companies.
“They’re creating relationships with an
individual or establishing a small group of
their own in China, or Singapore, to pro-
vide access for their companies into the
region. We think that is another opera-
tional effectiveness point that can be quite
interesting,” Gunn says.“We’re seeing this
moving into the mid-market groups as well,
where they’re building relationships for
their companies, to source, manufacture
or sell there.”
PROVING THE PUDDING
Private Equity International’s Operational
Excellence Special is an opportunity to
celebrate those firms that create true
value in their portfolio companies, who
contribute to the societies in which they
operate by building stronger, more sus-
tainable businesses. But this celebration
shouldn’t be limited to once a year; firms
››
One thing we
all can do in the
private equity
industry is demonstrate
the results of this
operational excellence
Francesco di Valmarana
Di Valmarana: there’s no free lunch
9. 7october 2015 operational excellence special 2015
that are making a real difference need to do
their part for the industry and shout about
it, says di Valmarana.
“One thing we all can do in the pri-
vate equity industry is demonstrate the
results of this operational excellence,” he
says. “Show to the broader market those
companies that had 200 employees and
a 10 percent EBITDA margin when pri-
vate equity invested, but when the private
equity firm exited had 400 employees and a
30 percent EBITDA margin.”
REPUTATION
Von Koch, long an advocate of greater
transparency in the industry, has called on
several occasions – including at this year’s
Operating Partners Forum Europe – for
the industry to reflect on why it historically
has had such a poor reputation. GPs have
the means to refute this, and they owe it
to the industry to do so.
Di Valmarana echoes these sentiments:
“My constant frustration is that we as an
industry don’t do enough and are not very
good at convincing the world at large that
aside from a few bad apples, most of these
private equity firms really are creating
employment and improving the companies
and doing a good thing, and they’re taking
the risk for doing it.”
Last year Von Koch told attendees at
the European Private Equity and Venture
Capital Association conference in Vienna
that there’s nowhere to hide, and he was
right.
Today’s private equity world is older
and wiser. Just providing great returns to
investors is no longer enough. The focus
is – and should be – shifting to the way
those returns are created. If you have a
great private equity value creation story
to tell, then tell it.Your industry needs
you. n
The real proof
has been
around when
things get tougher for the
company and for sectors
as a whole,how does that
business respond?
Graeme Gunn
10. 8 private equity international october 2015
OPERATING MODELS
Choosing the right fit
When it comes to operational expertise,investors can get
comfortable with almost any model out there,as long as
there’s transparency around remuneration — and proof
that the method actually works.By Isobel Markham
STRATEGY
There’s no question that the GP commu-
nity has made huge strides incorporating
operational capabilities into their teams.
Quite how they choose to incorporate those
capabilities varies widely from manager to
manager, based on myriad factors related
to investment strategy.
ECI Partners’ commercial team, its in-
house operations team, gets involved with
transactionsduringtheduediligenceprocess,
buildinga relationshipwithmanagementup
front.The team is remunerated through the
carry structure of the whole fund.
Each member of the team of four takes
responsibility for up to five businesses at a
time from the pre-deal phase until the exit,
taking on projects within the business itself.
“We see an advantage in being able to
facilitate getting more things to happen,
faster,” says Lewis Bantin, who heads the
commercial team. “We see an advantage
in being able to understand what’s really
happening within the business as well, to
understand how to help.”
ECI’s approach,Bantin says,has“proved
to be a competitive differentiator” for the
firm when negotiating deals.
At Apax Partners, the in-house opera-
tional excellence group has also helped the
firm win deals.
“Frequently, we can differentiate our-
selves in a process and help identify or
create investment angles,”says partner Seth
Brody, the team’s head.
Apax’s team of 13 are also remunerated
through the carry structure of the fund.
However, instead of running a generalist
model, the team is functionally oriented,
focusing on seven “vertical practice areas”
– digital acceleration, analytics and big
data, portfolio efficiency, information
technology,100-day execution,change and
transformation, and ESG.
Instead of having a specific operating
partner assigned to a portfolio company,
one member of the team will lead the work
on a particular company,with others step-
ping in on a project-specific basis.
“Our view is that we should engage
wherever we can have the biggest impact
on driving tangible equity value,”Brody says.
EQT, on the other hand, makes a point
of avoiding operating partners.
“We believe that having operating
partners is quite a challenging model,” says
ChristianSinding,partnerandheadofequity.
Firstly, Sinding says, it can be difficult
to get good co-operation from the com-
pany’s management team if the investor is
forcing it to work with a certain person.
It can also cause conflict within the private
equity firm itself.
“There can be a tendency to have an A
team and a B team internally,where the deal
makers become the A team and the opera-
ting partners become the B team,” he says.
Instead, EQT appoints a board chair
from among its network of industrial advi-
sers to help guide the management team.
These industrial advisers earn a retainer,
and will be invited to invest both directly
into the portfolio company and the EQT
funds.
“We are good at learning about our busi-
nesses very quickly,but we’ll never know as
much as someone who’s an expert already,”
Sinding says.
PERFECT FIT
Although some LPs will admit to having
preferred operating models, the majority
agree that when it comes down to it, GPs
need to choose the model that’s the right
fit for them.
“Clearly we want to select those groups
Sinding: having operating partners is a
challenging model
11. 9october 2015 operational excellence special 2015
OPERATING MODELS
who have a model that works for them,
their portfolio companies and manage-
ment,” says Graeme Gunn, a partner at SL
Capital. “There is no one correct model
and it needs to be adapted and integrated
seamlessly into the organisation.”
Francesco di Valmarana, a partner at
Pantheon focused on European primary
and secondary investments,sees significant
variation in operational interventions
depending on the investment strategy.
“If it’s a turnaround-oriented firm
then the operational experience is going
to be fixing a balance sheet, it’s going to be
putting a tough senior manager in there to
take care of the HR issues in the firm, and
it might only be a little bit of sales force
management or operational excellence etc.,
because that’s not what needs to be done to
the company at that time,” he says.
Secondary and tertiary buyouts often
already have KPIs and performance indica-
tors in place,and are likely to require more
specialist interventions,such as working on
rationalising supply chains following a buy-
and-build strategy.
“There is no cookie-cutter approach
to this,” di Valmarana says. “We have to sit
down with the GP and understand:what is
their kind of deal? And then, what kind of
operational approach do they bring to it?”
CONCRETE PROOF
However, talking the talk is not enough.
LPs want to see concrete proof that a
GP’s operational capabilities contribute to
building a better business – and delivering
a higher return.
“You can put anything down on paper,”
di Valmarana says. “What you look for is
evidence in the existing portfolio that there
has been an operational engagement which
is coherent with the investment thesis.”
As part of his assessment of a GP’s oper-
ational capabilities, John Gripton, a man-
aging director and chairman of the global
investment committee at Capital Dynamics,
looks at the background and composition
of the team to assess its relative strength
in each sector.
“We’re actually looking at the perfor-
mance of the manager not just overall
but looking at each individual sector and
the way that returns have been achieved,”
Gripton says.
Gripton wants to know that the opera-
tional value-add is not only effective, but
also repeatable.
“We’re looking for consistency,”he says.
“Is it a model that’s been working for some
time now or is it transitioning? There’s
nothing wrong with transitioning,but at the
end of the day, it’s the future return that’s
so important for us. We have to believe the
ability is there to deliver future returns.”
TRANSPARENCY
The private equity industry has been under
significant pressure in recent months
to provide more transparency around fees.
How they choose to incorporate operating
capabilities into their investment model –
and who pays – has not escaped scrutiny.
“No one model is right,but we certainly
are looking for transparency [on] total
remuneration,” Gripton says.
Those firms that include operating part-
ners in the carry structure or have in-house
operations team often frame these services
as “free”. However, that’s never really the
case, di Valmarana says.
“There’s always a consultancy fee or an
operationalfeesomewhere,andyou’reeither
going to pay it to BCG,Bain,McKinsey etc.
or you’ve staffed up internally and that cost is
going to be borne somehow by the company
or by the fund,” di Valmarana says.
“At the end of the day the shareholders
are always the people paying for it,it’s just a
question of at what point in the company’s
P&L or balance sheet are they paying for
it? All we want to make sure is that that’s
declared, appropriate and that we under-
stand how it’s working.”
As Gripton points out,the focus should
always remain on the end result; higher
returns can justifier higher fees, so long as
those fees are transparent.
“Yes, we are very mindful of cost and
fees, but at the end of the day it’s: do we
believe that the net returns that our clients
will receive justify the fee level?” Gripton
says. “I would be unlikely to dismiss an
investment just because of a fee structure
if the fee structure supported the returns
that we were looking for.” n
Our view
is that we
should engage
wherever we can have
the biggest impact
on driving tangible
equity value
Seth Brody
Made to measure:
the right strategy has to be
tailor-made to the deal
12. 10 private equity international october 2015
INDIA ROUNDTABLEEXPERT COMMENTARY: McGLADREY
Due diligence is the tip of the iceberg
Post-carve-out investments
in technology are often
severely underestimated,
writes Jonathan Caforio
CARVE-OUTS
surprise within the first six months of the
investment.
Post“day one”,many management teams
fail to appreciate the level of difficulty
related to the technology portion of the
transition.They can also lose focus on the
main goal – ending reliance on the transi-
tion services agreement (TSA) – that then
prolongs the separation phase and theTSA’s
high monthly cost.Frequently,there is also
pressure to add costly new functionality
that isn’t required to end the TSA, which
both delays the exit from theTSA and adds
unnecessary cost at this critical stage.
ORGANISATIONAL CONCERNS
Many divestitures are plagued with a lack
of resources and minimal understanding
of core business processes. Resources that
have the most intimate understanding of
existing core business processes tend to stay
with the seller. If they are part of the new
company, they tend to want the processes
to be as they’ve always been vs how they
should be in the much smaller organisa-
tion.This perspective presents a critical risk
when attempting to rebuild core software
applications,specifically the ERP platform
and its related systems, to fit the needs of
the new entity and the buyer’s core invest-
ment thesis.
Divested organisations are often missing
complete functions critical to the business.
If functions were handled by the seller’s
shared service organisation structure,entire
departments may not exist at the carve-out,
usually involving finance and technology.
Within finance,there may be no personnel
fulfilling the accounts payable or accounts
receivable functions. In technology, there
may be location-specific support, but no
individuals with a deep understanding ofCaforio: remember that people make the process
There have been more than 200 private
equity backed carve-outs per year for the
past five years in the US alone, according
to PitchBook. Divestitures and carve-
outs are consistently attractive targets for
both private equity and strategic buyers,
offering significant value – but this type
of transaction comes with distinct com-
plexities that often lead to significant
unexpected costs.
Buyers must allow ample time and
budget to deal with the reality of unplanned
tasks and challenges that come with com-
pleting any technology-related separation
project.An anticipated $150,000 expense
can quickly turn into a $1 million post-close
requirement. For that particular buyer, it
was an expensive lesson in the value of IT
due diligence and planning for “known
unknown” costs.
The buyer had carved out a $40 mil-
lion division from a $20 billion company.
It came with limited IT systems, and no
infrastructure or personnel.Post-close,the
true complexity – and cost – of the carve-
out became clear.Integrating the enterprise
resource planning (ERP) systems took more
time than anticipated. Decoupling servers
and networks required a significant invest-
ment,as did outsourcing the payroll-related
processes and implementing new infra-
structure.
In many carve-outs, including the one
above, buyers do not even invest in a basic
level of IT due diligence that would pro-
vide critical insights into the current and
post-close state of the carve-out’s techno-
logy systems. For buyers that do perform
IT due diligence, the challenge is estimat-
ing the effort and cost of separating and
building these systems – the estimate is
usually too low, resulting in an expensive
13. 11october 2015 operational excellence special 2015
INDIA ROUNDTABLEEXPERT COMMENTARY: McGLADREY
the business applications and their complex
integrations with other systems.
Turnover in key positions also adversely
affects the project’s success.A recent exam-
ple is a carve-out in the manufacturing
industry that included turnover at the
C-level (president and multiple CFOs), as
well as in the HR, supply chain, produc-
tion planning, product data management
and customer service functions. Maintain-
ing continuity and business process own-
ership on the core application implemen-
tation projects was not possible for many
functions.
APPLICATION MIGRATION/
IMPLEMENTATION
The obvious core application for the major-
ity of businesses is the finance and account-
ing platform and by extension,the full ERP
system.
Generally, this application must be
rebuilt from the ground up,because a direct
copy or forklift of the system is either not
technically feasible or not allowed by the
seller. The effort involved in building the
new finance and accounting functions are
greatly affected by the number of enti-
ties, countries, currencies and languages
involved.Even a small company can require
a complex implementation in a global
economy with its myriad local compliance
regulations.
The core systems running the busi-
ness generally contain business logic that
is propriety to the carved-out entity and
will require some degree of duplication to
maintain operations. These systems vary
widely by industry. In service businesses,
this takes the form of professional services
automation modules,sometimes called ser-
vices resource planning.For manufacturing, ››
Even a small
company
can require a
complex implementation
in a global economy
with its myriad local
compliance regulations
Jonathan Caforio
this may include manufacturing resource
planning and supply chain management.
These components are usually integrated to
address mission critical operations such as
product configuration, master production
scheduling, shop-floor control, warehouse
management and distribution.
Many businesses depend on electronic
data interchange (EDI) as an integral part
of their supply chain. EDI includes pur-
chase orders,shipping labels,advanced ship
notices and invoices.Reimplementation of
EDI requires contracts with a new EDI
value-added network and a specific build,
test and certification effort with all the
carved-out entity’s vendors, suppliers and
customers. The project timeline is often
highly dependent on when the customer
can test the new EDI transaction(s).
Reporting and business intelligence/
analytics is often pushed off until the end
of ERP projects. However, it represents
a significant cost and is almost always an
immediate issue after the ERP system goes
live.Rarely do“out of the box”reports meet
leaders’ expectations.These expectations
must be managed up front and invested in
to mitigate this risk.
It is important to negotiate and obtain
direct access to the existing business logic
during the transition. This intellectual
property is critical to running the new
business. Direct access will also uncover
additional applications that may be nec-
essary but are not discovered during IT
due diligence – for example, a customer
service voice response application that
retrieves data from the ERP system or
a time reporting system with complex
internal business rules.
Simple applications are also often over-
looked when initially estimating the
14. 12 private equity international october 2015
INDIA ROUNDTABLEEXPERT COMMENTARY: McGLADREY
carve-out project.These include ERP
extensions for HR,tax,expense reimburse-
ment,the physical building security (badge)
system,and the company’s intranet and/or
document management systems.
INFRASTRUCTURE MIGRATION/
IMPLEMENTATION
Infrastructure projects – such as building
the new network, voice, server and sto-
rage environment – may seem straightfor-
ward. However, they’re often complicated
by the need to co-exist with the seller’s
network and access the seller’s applications
during the TSA period. Buyers also have
to comply with the seller’s security and
privacy policies and deal with supporting
a dual environment until all the applica-
tions and infrastructure are completely
built and tested.
The environment should be architected
with your investment thesis and specific
exit strategy in mind. Decisions on using
capex vs opex, cloud vs on-premise, sto-
rage and managed services can have a
Managing the transition requires the
full support and attention of senior leaders
to champion the effort and make difficult
decisions along the way.When their atten-
tion is diverted and decisions deferred,the
likelihood of churn on requirements and
the amount of unnecessary work during
the separation increases.
During the critical first few months of
the transition,the technology aspect of the
carve-out is just as important to success
as getting the newly independent business
started on the right footing, yet often the
executive team is completely distracted
with business plans and financial targets,
leaving the technology carve-out adrift.A
strong transition leader with direct C-level
relationships is essential.
In addition, it’s also important to
remember that people make the process.
In a carve-out situation,initial morale may
be low and people are stretched thin in
their new roles.They are most likely com-
pleting their day job while also working
on the mission critical carve-out project.
Investing in communications, training and
process documentation will save real money
in the long run.
Whether you are completing an IT
due diligence effort for a carve-out or are
attempting to put the right estimates in
place for the required investment,be aware
that you will not know everything you need
to know up front. Don’t underestimate
the distinct complexities of carve-outs
and, by extension, the costs. Budget for
the “known unknown” by leaving yourself
ample contingency for unplanned require-
ments common for all technology projects,
carve-out or not. n
When the
attention of
senior leaders is
diverted,the …amount
of unnecessary work
during the separation
increases
Jonathan Caforio
Jon Caforio is a principal in Technology and Management
Consulting at McGladrey.
wide range of implementation and ongo-
ing support costs.These decisions directly
affect EBITDA and the future value of the
company. Most IT due diligence efforts
are not scoped for contemplating these
nuances.When estimating post-close capital
expenditure, keep in mind that the new
entity may not be able to initially obtain
credit for leasing hardware. It will need to
be purchased outright.
Prior to the end of theTSA,a commonly
overlooked project is setting up the envi-
ronment management tools and processes.
Security will require specific software and
appliances,and must include a timely patch
management process. Monitoring, alert-
ing and reporting on the environment is
essential to being able to maintain a func-
tioning technology platform, and specific
approaches may be required to comply
with government and industry standards
(eg, HIPAA, PCI).
A rapid assessment of the IT landscape
pre-close can help determine the right-
sized infrastructure and ERP solution and
save a significantTSA expense.With plan-
ning, a $300 million manufacturing and
distribution arm carved out of a multi-
billion-dollar parent was able to project
its new infrastructure could be built in
just five months.
Thanks to this initial assessment and
upfront planning, theTSA could end seven
months ahead of schedule and save over
$2 million inTSA expense.
A FINAL WORD
Often, two of the most critical aspects of
a carve-out – transition management and
change management – are the first to be
cut from the budget or are given a low
priority.
››
16. 14 private equity international october 2015
MINORITY INVESTING
Majoring in minorities
What are the difficulties in driving value-creation
initiatives when you’re not the one behind the wheel?
Isobel Markham asks industry experts for advice
DOs AND DON’Ts
There are many positives about making
minority investments in growing businesses.
For starters, they tend to be less competi-
tive transactions. Many minority deals are
sourced independently, and are therefore
not brokered by investment banks.This also
means that the GP gets better access to the
management team and the portfolio com-
pany pre-deal.Vendors are often looking
for expertise as well as capital, and there’s
often a ‘natural’ fit with a certain GP. As
the buyers are not chosen on price alone,
it’s easier for GPs to avoid overpaying for
good assets.
“A good proportion of the deals that we
do come from our own origination rather
than from introductions from corporate
financiers,” says Rob Southern, a director
at UK firm Livingbridge, which predomi-
nantly makes minority investments. “We
can have a much more creative conversa-
tion with an existing management team
or a founder around the structure of the
balance sheet because we’re not seeking to
take majority ownership.”
What’s more,it’s no longer the case that
majority investments outperform minority
deals. Morgan Stanley Alternative Invest-
ment Partners analysed 215 deals – both
majority and minority – involving funds
in which it had a position, and found that
for deals entered into between 2008 and
2013 there was no significant performance
differential between majority and minority
investments.
“The ones that say, ‘I only want a majo-
rity interest,if I don’t get a majority I’m not
interested,’ I think they are missing out on
good opportunities,” says Antoon Schnei-
der,a partner at Boston Consulting Group
and author of the April 2015 study Private-
Equity Minority Investments:Can Less Be More?
“The data suggests that returns are at
least as good in minority deals, so you’re
just constraining yourself by saying, ‘I only
do majority, I only do control.’”
However,it has to be said that minority
investing isn’t suitable for every situation –
or every investor.You need to approach the
deal with a completely different mentality,
says Southern.
“[The way] we look at it,we’re a respon-
sible co-owner of this business,we need to
be helping this management team make the
right decisions about what it is that is the
right thing for the business to create value,
and we will seek to influence the agenda
such that that occurs,”Southern says.“That
influence is very often about our capability,
our competence, our expertise, and that’s
the right place for it to be, rather than our
equity holdings.”
1DO BE CLEAR ON WHAT YOU
BRING TO THE TABLE
“In a minority position, if you want to
add value at the operating level, there’s a
higher bar,”Warburg Pincus principal Peter
Deming told delegates at PEI’s Operating
Partners Forum Europe inApril.“You have
to prove well in advance that you can add
value, that whatever you bring to the table
can move the needle and is important for
management, because you obviously can’t
dictate those terms.”
Fellow panellist Southern agreed that
once operating partners get through the
door, they still need to prove their worth.
“We identify the interventions that are
going to be no-brainer easy wins as soon as
we possibly can,and that starts to build your
influence,” Southern told forum delegates.
“As a result of that influence you start to
assert a power base that isn’t around control
it’s around being the guys in the room that
Don’t let the
whole minority
thing get in
the way of making
the right decision
Rob Southern
17. 15october 2015 operational excellence special 2015
MINORITY INVESTING
actually know how to grow this business
in the best way.”
2DON’T DISREGARD
MANAGEMENT’S VALUE
While investors should be clear on how they
can add value to a portfolio company, it’s
important to remember that founders and
management teams are bringing a wealth of
knowledge to the table too.Their opinions
on the next move and the end goal should
be heard respectfully.
“Recognise that the management team
that has grown a business has typically got
a very solid view about where the future
lies, and that needs to be dealt with with
respect,” Southern says.
Lewis Bantin,a partner in ECI Partners’
commercial team,the firm’s in-house opera-
tions team, agrees.
“Theyhaveamuchbetterentrepreneurial
senseofwhat’srelevant in the market,they’re
much closer to the customers,they’re much
closer to the product development,”Bantin
says,adding that instead of stifling the busi-
ness with bureaucracy, operating partners
are “there to help harness and channel the
energy that has created the business in the
first place”.
3DO SPEND TIME BUILDING
RELATIONSHIPS
It’s something we hear time and again:pri-
vate equity is all about people.Never is this
truer than in minority deals.
“A lot of the alarm bells that we would
have would be around the behaviour of the
people that we are going to be working
with,”says Southern.“Are they behaving in a
way that is consistent with delivering value
within the business? Are they seeking to
build a relationship with us? Are they being
honest about good news and bad news?”
GPs should invest significant time
during the due diligence phase to ascer-
tain that all parties are aligned on where
the business is going.
“In a minority deal it’s very important
to make sure that you have alignment with
the majority shareholder,” Schneider says.
“Also,if you don’t have the right to replace
management, it’s important that you are
convinced the CEO will be the kind of
person that wants your help and will take
advice from you and really listen,somebody
you believe you’ll have a constructive rela-
tionship with.”
4DON’T NEGLECT GETTING THE
RIGHT TERMS IN PLACE
“The only thing around a minority that we’ll
be careful on is that we have some legal
controls to fall back on,” says ECI investor
relations partner Jeremy Lytle.
What those legal rights look like will
vary from deal to deal, but typically they
will address issues such as board represen-
tation, the triggering of control rights in
the case of underperformance, controls
over compensation, bonuses and company
expenditure, and exit timing.
But,as Southern points out,as necessary
as these legal covers are, even in a majori-
ty situation if there comes a point where
you’re asserting your equity right, then
“things are already broken”.
“Thefactofthematterisifyou’reamajori-
tyinvestorandyou’returninguptotheboard
meetingandgoing,‘Well,I’mthemajorshare-
holder and I say this,’that’s not going to build
alignmentbetweenyouandthemanagement
team. You’ll only be asserting your majority
equity in a situation where things haven’t
worked out,that there is misalignment.”
5DO PICK YOUR BATTLES
Whether a majority or minority
investor, you will not always agree with
management. There will be frictions. But
these frictions can be creative, argues
Southern,generating debate that could ››
On message: delegates at
PEI’s Operating Partners Forum in April
18. 16 private equity international october 2015
MINORITY INVESTING
LESS IS MORE
Source: The Boston Consulting Group
Minority deals by seven of the largest PE funds
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
8% 7% 10% 24% 29% 43% 32% 24% 24% 23% 24%
ultimately lead to the optimum outcome
for the business.
“You need to be very clear about the
times that you pick that you want to really
intervene, especially in those situations
where things aren’t quite working in the
way that you want them to,”Southern told
delegates at the forum.
This also goes back to recognising that
sometimes founders and management teams
really do know their own companies best.
“You debate and you put your best
case forward, but ultimately we’ll let the
management team run the business in the
direction they feel they want to run it,”
Deming told forum delegates. “Frankly
we’re honest with ourselves, they’re in the
business every single day operating,running
it, and so they should have a pretty good
view of which way to run it.”
6DON’T CHANGE YOUR VALUE-
ADD STRATEGY
When ECI takes a minority stake in a busi-
ness, the commercial team approaches its
tasks in exactly the same way as it does
when the firm acquires a majority interest.
“We’ll still run strategy sessions as a
team and try to prioritise what the big
issues are and help with those,”Bantin says.
“We don’t treat it any differently, we don’t
say, ‘We’re a minority and therefore we
won’t contribute as much time and effort.’”
Schneider agrees that GPs should use
their “normal toolkit”.
“Don’t start thinking,‘It’s a minority,and
therefore I’m not going to do my 100-day
plan,I’m not going to do all the good things
that I normally do operationally,’” he says.
“You should pick companies that would
be receptive to your normal way of adding
value,and then go ahead and add that value.”
Southern adds: “Don’t let the whole
minority thing get in the way of making
the right decision.”
7DO THINK ABOUT THE EXIT ON
THE WAY IN
At the Operating Partners Forum,Deming
told delegates that exit timing can often be
a point of disagreement.
“Exit timing always comes up,”Deming
said. “Part of exit timing might be do you
go public or do you hold on for longer and
think about a sale to a strategic? Do you
take it private? And sort of wrestling with
those questions is something that we often
debate a lot with our partners.”
Thinking about the exit on the way in,
Schneider says, is even more important
in minority deals than it is in majority
transactions.
“In a minority deal, it’s even more
important than usual to think about how
you’re going to exit and what the alignment
of interests will be at the time of exit,”
Schneider says.“How will you get fair value
if you want to sell but the other sharehol-
ders don’t?”
8DON’T ‘SETTLE’ FOR A MINORITY
STAKE
If a GP is evaluating a business on the
understanding that a majority stake is on
offer and then the vendor suddenly switches
to offering a minority stake, proceed with
caution.There’s a danger that the prerequi-
sites for a minority deal – such as minority
rights and clear alignment of incentives –
could be missing.
“Because it was envisaged to be a majori-
ty deal the GP normally would not have
considered these issues carefully,” Schnei-
der says.
It’s tough to turn your back when you’ve
fallen in love with a portfolio company,but
it’s often the wise choice.
“Sunk cost and time is exactly that,”
Schneider says. “The fact that you spent a
lot of time and effort and that it’s a really
good company is all fine, but in the end if
the prerequisites for a minority deal aren’t
there then you should walk away.” n
Southern: approach the deal with a different
mentality
››
%ofalldeals
19.
20. 18 private equity international october 2015
PEI Operational Excellence Awards 2015
Best in the business
Welcome to Private Equity International’s fourth
Operational Excellence Awards — our annual celebration
of the industry’s most inspirational value creation stories
from the last year. By Isobel Markham
INTRODUCTION
The days of buying a business,levera-
ging it to the hilt and selling it on two
or three years later at a hefty profit
are long gone.With growth rates in
developed – and many developing –
countries at rock bottom, GPs can’t
rely solely on macro trends and
market conditions to pull in stellar
returns. If you want to succeed in
private equity in 2015’s world, you
need to bring something else to the
table.
Adding value to a portfolio
company through true operational
change is an accomplishment often
talked about, but rarely demon-
strated.In recent years huge swathes
of the GP community have added
We asked GPs to submit any
investments either fully or partly
realised since June 2014 that they
felt were a particularly good example
of their ability to deliver operational
value as owners.
Entrants were asked to provide
specific details of the changes and the
initiatives they had undertaken,from
product development,to acquisition
activity, to supply chain improve-
ment,to management enhancement.
They were also asked to provide
tangible evidence of how these initia-
tives created value,whether in terms
of top-line sales growth,productivity
or capacity building.Impressive exit
multiples were clearly a plus,but the
main thing our judges were looking
for was some genuinely transforma-
tive work.
Entries were invited from three
regions –Americas,Asia-Pacific and
Europe, Middle East and Africa.
We then divided them up into four
distinct size categories, according
to the deal’s entry price – large
cap (greater than $500 million),
upper mid-market ($150 million-
$500 million), lower mid-market
($50 million-$150 million) and small
cap (less than $50 million).
Next, we convened a distin-
guished panel of judges in each of the
three regions.They were tasked with
analysing the short-listed entries,
debating their worth and reaching a
consensus on which represented the
best example of operational excel-
lence in each size category.
So what was it they were
looking for? For starters,something
operational capabilities to their arse-
nal. But is it being reflected in the
businesses they’re ultimately selling?
At a time when many investors
are looking to rationalise their GP
relationships, it’s never been more
important for firms to actually dem-
onstrate – and not just shout about
– their value creation credentials
if they want to stand out from the
crowd.
This is where our Operational
Excellence Awards come in. Now
in their fourth year, we introduced
these awards to try to answer a
question that’s become increasingly
important to LPs: who are the best
operators in the industry?
21. 19october 2015 operational excellence special 2015
PEI Operational Excellence Awards 2015
WINNERS
AMERICAS
SMALL CAP
Blue Point Capital Partners —
Area Wide Protective
LOWER MID-MARKET
Sun Capital Partners — Point Blank
UPPER MID-MARKET
Gryphon Investors — Flagstone Foods
LARGE CAP
Oak Hill Capital Partners —
Dave & Buster’s Entertainment
ASIA-PACIFIC
SMALL CAP
Mekong Capital — Golden Gate
LOWER MID-MARKET
Headland Capital Partners —
Young Toys
UPPER MID-MARKET
Tokio Marine Capital —
Bushu Pharmaceuticals
LARGE CAP
CVC Capital Partners — HKBN
EMEA
SMALL CAP
Aurelius — Connectis
LOWER MID-MARKET
OpCapita — GAME Digital
UPPER MID-MARKET
Sun European Partners — DBApparel
LARGE CAP
Nordic Capital — Thule Group
far beyond a great exit multiple.“The
challenge of judging the Operational
Excellence Awards is that it is not
the Deal of the Year Awards,” said
EMEA judge Miles Graham. “Some
submissions had impressive returns,
but many of these reflected smart
market-timing calls by deal teams.”
Thomas Pütter, chairman and
chief executive of Ancora Finance,
agreed that the majority of the
entries demonstrated good growth
management.However,doing a great
job as a private equity investor does
not equate to effecting true opera-
tional change.
“Having a good business idea, a
vision to fill a gap in a market and
then doing so does not necessarily
mean that the execution of the plan
represents operational excellence,”
Pütter said.
Antoon Schneider,who leads The
Boston Consulting Group’s private
equity work in London,thought this
year’s batch included many strong
examples of operational excellence,
given that the majority of them were
held throughout the global financial
crisis.
“The entries were all of very high
quality,with a clear link between the
private equity firm’s support and the
value creation.This was particularly
impressive during a holding period
where many of these investments
were experiencing a downturn
period in the general economy,”
Schneider said. “I was looking for
portfolio companies that were
sailing against the headwinds or were
able to perform better than market
conditions. And then I was looking
for clear action from the private
equity firm that enabled that per-
formance, rather than just a great
management team.”
One example would be Nordic
Capital, which took the large cap
category in EMEA this year with
Swedish outdoor equipment maker
Thule Group. A business reliant on
discretionary spend acquired just
before the crisis hit meant that
Nordic was in for a tough ride, and
our judges were impressed with the
firm’s strong turnaround plan and
subsequent focus on strategically
repositioning the brand, arguably
making it more future-proof.
Once again we were delighted
by the calibre of the entries for our
Operational Excellence Awards.The
same goes for our judges,who had to
make some tough decisions.
“Last year there were some
slam-dunk winners but this time,
in most categories, there were
really hard decisions to be made,”
said Suvir Varma, a partner with
Bain & Company’s Southeast Asia
practice and a judge in the Asia-
Pacific region.
A warm congratulations to all of
this year’s winners, and to all those
firms who shared their value crea-
tion stories with us. We thoroughly
enjoyed poring over your remarkable
case studies, and we can’t wait to
hear more of your inspiring invest-
ment stories next year as private
equity firms continue to take opera-
tional excellence and future-proofing
to the next level. n
22. 20 private equity international october 2015
PEI Operational Excellence Awards 2015
DOMINIC JEPHCOTT
VENDIGITAL
Americas
Asia-Pacific
Dominic Jephcott
is the founder of
Vendigital, a global
procurement and
supply chain con-
sultancy firm. He
founded Vendigital
after many years of
business manage-
ment within large, global corporations,
including 15 years of executive responsi-
bility. Jephcott is based in Hong Kong and
runs Vendigital’s Asia business.
PAUL FUHRMAN
EY
Paul Fuhrman is part-
ner at EYTransaction
Advisory Services,
specialising in pri-
vate equity value
creation.His practice
focuses on opera-
tional restructuring
and performance
improvement within portfolio companies.
Based in Boston, Fuhrman previously
served as senior vice-president at Celerant
Consulting for five years, and as president
and managing director of Americas at Col-
linson Grant for three years.
SUVIR VARMA
BAIN & CO
Suvir Varma is a part-
ner with Bain & Com-
pany’s Southeast
Asia practice and
leads the firm’s Asia-
Pacific private equity
and sovereign wealth
fund practice. He
is based in Singa-
pore. With nearly 20 years of relevant
experience in investment banking and
consulting, Varma has expertise across
a number of industries, including gov-
ernment, financial services, oil and gas,
industrial, consumer products and airlines.
MICHAEL MCKENNA
ALVAREZ & MARSAL
Michael McKenna is
a managing director
of Alvarez & Marsal’s
Private Equity Perfor-
mance Improvement
group. He works
with private equity
investors across the
transaction lifecycle
to identify and execute transactions, acce-
lerate portfolio company performance and
provide a smooth investment exit. His pri-
mary area of focus is finance operations,
driving improvements in working capital
management, accounting and treasury
operations, and reporting and analytics.
Before Alvarez & Marsal, McKenna was
senior manager at BearingPoint and prin-
cipal at Arthur Andersen.
IVO NAUMANN
MCKINSEY & COMPANY
Ivo Naumann is
a partner with
McKinsey & Com-
pany where he
leads the Recovery
and Transformation
Services practice
in Greater China.
Naumann has more
than 20 years of experience in supporting
shareholders and management to restruc-
ture and drastically improve performance
of underperforming businesses in Asia.
He has acted in multiple interim manage-
ment roles and served on various boards
of director for companies in China, Japan
and Southeast Asia.
Meet the judges
An influential panel
of industry experts
from across three
regions assessed the
relative merits of our
submissions
23. 21october 2015 operational excellence special 2015
PEI Operational Excellence Awards 2015
STEVEN KAPLAN
UNIVERSITY OF CHICAGO BOOTH
Steven Neil Kaplan
is the Neubauer
family distinguished
service professor
of entrepreneur-
ship and finance
at the University of
Chicago’s Booth
School of Business.
His research focuses on private equity,
venture capital, entrepreneurial finance,
corporate governance and corporate
finance. He teaches advanced MBA and
executive courses at Booth and was
named by BusinessWeek as one of the top
12 business school teachers in the country.
Kaplan cofounded the entrepreneurship
program at Booth, helping start its busi-
ness plan competition known as the New
Venture Challenge.
THOMAS PÜTTER
ANCORA FINANCE GROUP
EMEA
Michael Murphy is
a managing direc-
tor with AlixPartners,
where he leads the
financial advisory ser-
vices and turnaround
& restructuring prac-
tice for the firm in the
Asia-Pacific region.
Murphy has 25 years of professional expe-
rienceinprovidingrestructuringandfinancial
consulting services, and specialises in con-
sulting engagements on behalf of investors
and boards of directors, as well as debt-
ors and creditors involved in turnarounds.
Murphyalsohasexpertiseinvariousfinancial
advisory services, such as due diligence.
Antoon Schneider
is a senior partner
at The Boston Con-
sulting Group (BCG)
and leads the Prin-
cipal Investors &
Private Equity prac-
tice in London. He
is a core member of
BCG’s Corporate Development practice.
He has advised leading principal inves-
tors and more than half of the 50 largest
private equity firms globally on a range
of deal sourcing, due diligence and firm
strategy projects. He has also worked with
their portfolio companies on numerous
100-day plans and operational improve-
ment projects, and has extensive expe-
rience in corporate strategy and M&A.
MILES GRAHAM
JOHN HARDY
Miles Graham is the
president and chief
operating officer of
jewellery brand John
Hardy. Previously, he
was a director and
head of active part-
nership at 3i Group,
where he oversaw
operational improvements across a $6 bil-
lion portfolio of 100 companies, which he
joined after five years at McKinsey & Com-
pany. He has worked as a chief executive
officer and a non-executive director for
several consumer and business services
companies.
LUDOVIC PHALIPPOU
UNIVERSITY OF OXFORD
Thomas Pütter is
chairman and chief
executive of Ancora
Finance Group,
which is involved in
a range of activities
in the consulting
and alternative asset
investment spheres.
He holds board and advisory positions with
a number of companies in both the private
and public sector. Until mid-2010, Pütter
was chairman of Allianz Capital Partners.
Ludovic Phalippou
is lecturer in finance
at the Saïd Business
School, University of
Oxford. He specia-
lises in private equity
funds and focuses
on issues such as
risk management,
liquidity and measurement of returns.
Phalippou’s research in this area has been
published in leading academic and prac-
titioner journals such as the Journal of
Finance, the Review of Financial Studies
and the Journal of Economic Perspectives.
ANTOON SCHNEIDER
BOSTON CONSULTING GROUP
MICHAEL MURPHY
ALIXPARTNERS
24. 22 private equity international october 2015
PEI Operational Excellence Awards 2015 Americas
Blue Point Capital Partners:
AreaWide Protective
WINNER — SMALL CAP
When Blue Point acquired Area
Wide Protective (AWP) in 2008,the
Ohio business was a leading provider
of temporary traffic control services
used in maintenance or construction
projects.The private equity firm,also
Ohio-based, acquired the business
with equity from its $400 million
2006-vintage fund.
“Itwasatraditionalentrepreneur-
ial business with the entrepreneur
making all of the decisions,”said Sean
Ward,a partner at Blue Point Capital
Partners who led the transaction.
Managed from 12 offices in 13
states and a daily workforce of 650,
AWP had developed a solid reputa-
tion since its founding in 1992. But,
it was also leanly managed and had a
customerconcentrationissue,withits
largest client accounting for 38 per-
cent of its annual revenues, which
were derived from its operations in
theMidwestandMid-Atlanticregions.
Following the deal, Blue Point’s
growth plan for AWP included
executing a number of operational
improvements such as extensive
safety training, installing a profes-
sional management team,upgrading
the company’s financial reporting
systems and information technology.
Former Blue Point operating execu-
tive group member Dudley Sheffler
assisted with the plan along with
Rody Salas, appointed from Blue
Point’s operating executive group
to oversee the initiatives.
The firm also planned to grow
the business through M&A. In
November 2009,AWP acquired US
Traffic Technologies and expanded
its operations by opening new offices
across Alabama, Mississippi, Arkan-
sas, Oklahoma andTexas.
“Our whole focus was on two
things in the first five years of our
investment:maintaining the safety of
the motoring public,our customers
and employees; and meeting custo-
mers’ needs, while achieving local
and state regulatory compliance in
the areas whereAWP was working,”
Ward said.
“Ittookyearstomakesurethatwe
got the culture to the point where it
needed to be.”
In September 2012,the company
recruited former Roadway Express
vice-president John Sypek as presi-
dent and chief operating officer.
Sypek also brought on two outside
directors with utility experience.
“The combination of front-office
improvements to foster organic
expansion, back-office cost reduc-
tion and rigid control of spending
throughout the organisation resulted
in top line and bottom line improve-
ments,”said judge Michael McKenna,
a managing director of private equity
services at Alvarez & Marsal.
Under Blue Point’s stewardship,
the business grew to span 17 states
and employing more than 1,000 traf-
fic control specialists. Its EBITDA
grew to more than six times and its
revenues over three times since 2008.
Blue Point subsequently exitedAWP
throughitssaletoRiversideCompany
for undisclosed terms in June.
Judge Paul Fuhrman, a partner
at Ernst &Young, said under Blue
Point’s ownership:“AWP grew from
a regional player to three times the
size of the industry’s number two
player.” n
650
Employees
at time of
acquisition
in 2008
1,000
Employees
at time of sale
in June
AWP: revenues
have more than
tripled since 2008
25. 23october 2015 operational excellence special 2015
Americas PEI Operational Excellence Awards 2015
40.6%
IRR realised by
Sun Capital
Point Blank: the
New York Police
Department is a
customer
Sun Capital Partners:
Point Blank
WINNER — LOWER MID-MARKET
When Point Blank Enterprises was
acquired by Sun Capital Partners in
March 2010, it was posting yearly
losses of $4.9 million. This April
it announced an annual profit of
$24.1 million.
At the time, Point Blank was
formed through the merger of three
separate companies:Protective Prod-
uctsEnterprisesandPointBlankBody
Armor,which were acquired through
bankruptcyauctionsin2010and2011,
respectively,andParacleteArmorand
Equipmentin2011.Thethreecompa-
nies completed their merger in 2012
tocreatethelargestsoft-bodyarmour
company in the world.
“The transition from bankruptcy
to industry leader is an impressive
feat,” said Americas judge Michael
McKenna, a managing director at
Alvarez & Marsal. “[They] success-
fully installed new management to
create a single collaborative team
with lasting positive changes in the
company’s culture.”
After the merger Sun Capital
installed a new management team at
Florida-based Point Blank with a new
chief executive, Daniel Gaston, who
served as CEO of two other Sun Ca-
pital portfolio companies – Friction
Holdings and Raybestos PowerTrain.
Through a newly-created train-
ing programme on employee
competence and compliance, Point
Blank was able to foster a posi-
tive company culture that led to
improved internal operations.
“We do not shy away from busi-
nesses losing money,”said Sun Capi-
tal managing director Scott Edwards.
“It wasn’t a foreign concept to us to
look at businesses in bankruptcy,and
we saw the opportunity to transform
their potential into results.”
Indeed, about one-third of Sun
Capital’s portfolio companies were
losing money at time of acquisition,
Edwards said.
The re-engineering of its supply
chain cut material costs by 30 per-
cent, and equipment utilisation
and labour productivity went up
5 percent by streamlining its order
process and organising its pro-
duction process. The product
delivery times at Point Blank
were reduced from 60 to 21
days,which is considered“best in
class”,according to Ernst & Young
partner Paul Fuhrman.
With these improvements came
the capacity to expand Point Blank’s
product portfolio.It launched an in-
house infrastructure to make hard-
armour plates and an Alpha Elite
product series for law enforcement
in January 2014. Exclusive partner-
ships with other armour-related
accessories manufacturers were
developed to enhance cross-selling
opportunities to customers. The
NewYork Police Department pur-
chased Point Blank’s bulletproof
vests earlier this year, Edwards said.
Four months ago Sun Capital
completed its sale of Point Blank to
JLL Partners, with Sun Capital co-
chief executive Marc Leder saying:
“While at the outset these busi-
nesses faced significant challenges,
we saw huge potential and believed
that an operationally-focused stra-
tegy would enable the company to
achieve tremendous results in the
global market.”
With an IRR of 40.6 percent,Sun
Capital undoubtedly recognised the
potential for transformation in Point
Blank. n
26. 24 private equity international october 2015
PEI Operational Excellence Awards 2015 Americas
Gryphon Investors: Flagstone Foods
WINNER — UPPER MID-MARKET
This year’s Americas upper mid-
market award goes to Gryphon
Investors, a buyout firm whose
brand name symbolises a legendary
creature that serves as a “guardian
and protector of hidden treasures –
a symbol of strength and vigilance”,
as the firm’s marketing tagline reads.
The California buyout firm is also
a builder of mid-market businesses,
as shown by the significant opera-
tional improvements it undertook
to create growth in Minnesota’s
Flagstone Foods during four years
of ownership.
Gryphon created the business in
2010 – the outcome of an effort to
invest in the private label healthy
snack foods category – through the
merger of two snack-food com-
panies: Ann’s House of Nuts and
American Importing Company.
The cobbling together of the two
family-owned businesses created
the largest private-label manufac-
turer of trail mix, snack nuts and
dried fruits in the US.
“The combination of a truly
exceptional, Gryphon-recruited
management team, our own inte-
grated operations and investment
team, and the two founder-owned
businesses entrusted to us resulted
in the creation of the leading healthy
snacks manufacturer in the country,”
said David Andrews,chief executive
and managing partner of Gryphon
Investors.
Gryphon did not waste time in
fortifying the company’s leadership
ranks.
Within six months of the deal’s
close, it had appointed Dennis
O’Brien, a former ConAgra retail
products president, to serve as its
lead operating partner, and tapped
ex-ConAgra Snack Foods president
Paul Lapadat to lead the company as
chief executive.
A team of five Gryphon profes-
sionals, including human capital
partner Dell Larcen, recruited
numerousotherseniorlevelmanagers
to round out its management team.
The growth plan included a
number of steps: develop better
snack food category management;
improve the merchandising of the
snack foods through innovating
packaging; and better placement of
the products within stores.
Flagstone’s management also
realised that they could manage
commodity costs better by directly
sourcing raw fruit and nut ingre-
dients.
“Growth was achieved through
more sophisticated merchandising
$396m
Revenues in
2010
$730m
Revenues at
time of sale
in 2014
Flagstone Foods:
workforce grew
from 562 to 1,365
and category management, and
innovative ‘first of its kind’packaging
concepts,”said judge Paul Fuhrman,
a partner at Ernst & Young.
As a result, Flagstone’s revenues
jumped 19.6 percent annually to
$730 million at the time of sale
from $396 million in 2010, while
its EBITDA grew at a compounded
yearly rate of 27.5 percent, from
$30 million to $69 million under
Gryphon’s ownership. Amid the
improved financial performance,
Flagstone’s executives also grew
their workforce from 562 in 2010
to 1,365.
Judge Steven Kaplan, professor
of entrepreneurship and finance at
the University of Chicago Booth
School of Business,characterised the
growth as “an impressive improve-
ment in sales and EBITDA”.
By 2014,Gryphon’s team decided
to realise the investment, launching
a dual-track M&A auction and ini-
tial public offering for the company.
They hired investment banking firms
Moelis & Company,Houlihan Lokey
and BMO Capital Markets to manage
the process.
An M&A trade sale won the day
when publicly-traded food retailer
TreeHouse Foods agreed to acquire
Flagstone for $860 million in June
2014, generating 50 percent IRR
and a 4.2x multiple for Gryphon.
“We are particularly proud of the
category-leading innovation, opera-
tional improvements and growth in
revenues, EBITDA and employees
Flagstone realised under our own-
ership,”Andrews said. n
27. 25october 2015 operational excellence special 2015
Americas PEI Operational Excellence Awards 2015
OakHill:Dave&Buster’s Entertainment
WINNER — LARGE CAP
Dave & Buster’s transformed from a
tired restaurant brand to a refreshed
household name thanks to Oak Hill
Capital Partners and its management
team.The private equity firm’s third
fund acquired Dave & Buster’s in
June 2010 from Wellspring Capital
for $570 million in total enterprise
value, including $236 million in
equity from Oak Hill.
“This is a company that we pro-
actively identified and sought out
the opportunity to acquire,” said
Oak Hill partner Kevin Mailender.
“We were able to have the chance to
meet with Dave & Buster’s and com-
plete the transaction in an exclusive
arrangement.”
Oak Hill has a lot of experience
in the retail and restaurant space,
Mailender said, and recognised that
Dave & Buster’s would benefit from
a more supportive macroeconomic
environment, but also had a signifi-
cant opportunity to unlock the full
power of its brand.
Under Oak Hill’s management,
headcount at the restaurant chain
grew from 7,400 employees at the
firm’s entry to more than 11,000
across 77 locations in the US and
Canada.
“The investment in Dave & Bus-
ter’sEntertainmentbyOakHillCapi-
tal Partners deserves recognition as
sustainable restaurant turnarounds
are challenging and uncommon,”said
judge Michael McKenna, managing
director at Alvarez & Marsal.
Oak Hill and Dave & Buster’s
increased same-store sales and
refreshed the Dave & Buster’s brand,
turning a decline into growth of
approximately 10 percent year-on-
year, as reported for the last three
quarters.
At the time of acquisition, Dave
& Buster’s had an adjusted EBITDA
of $84 million.It expects to generate
between $199 million and $203 mil-
lion in adjusted EBITDA for the fiscal
year 2015, and has outperformed
the industry benchmark – the
Knapp-Track index for comparable
restaurant same-store sales – for 13
consecutive quarters, according to
Mailender.
“When you dig further into
what’s behind that growth, I think
it gets more impressive,” Mailender
said.“Not only is it a very compelling
metric relative to the industry, but
also impressive when you consider
this is a 30-year brand generating
that growth.”
Steven Kaplan, professor at
Chicago Booth School of Business,
agreed that“refreshing,remodelling
and reorienting” is a difficult task
in the US, but the company turned
around to expand store count.
The firm also accelerated new
store openings from 4 percent unit
growth in fiscal year 2010 to 12 per-
cent in 2014, averaging more than
a 45 percent first-year return on
invested capital.
“This turnaround was achieved
within the intensely competitive
casual-dining segment of the market,
creating both top- and bottom-line
growth, while improving customer
service levels as measured by guest
experience scores,” said Ernst &
Young partner Paul Fuhrman.
After pulling out of an IPO in
2012,Oak Hill took Dave & Buster’s
public at $16 per share last October.
In February,the PE firm participated
in an offering of 6.6 million shares
at $29.50 per share and another in
June at $31.50 per share.
At the time of press,Dave & Bus-
ter’s stocks were trading at $42.71,
giving the restaurant chain a market
capitalisation of $1.76 billion.
“We believe in the future perfor-
mance of our businesses,”Mailender
said. “We thought IPO was the
most attractive path [for Dave &
Buster’s].” n
$84m
Adjusted
EBITDA at time
of acquisition
in 2010
$203m
Top end of
predicted
adjusted
EBITDA for
the fiscal
year 2015
Tasty turnaround:
Oak Hill and
Dave & Buster’s
reversed a sales
decline into
growth of around
10 percent year-
on-year
When you
dig further in
what’s behind
the growth,it
gets more impressive
Kevin Mailender
28. 26 private equity international october 2015
Mekong Capital: Golden Gate
WINNER — SMALL CAP
Mekong Capital’s investment in Viet-
namese restaurant group Golden
Gate in April 2008 kickstarted a
transformation of what was then a
chain of eight high-end mushroom
hot-pot restaurants into a mid-
priced group boasting around 70
premises on exit in August 2014.
Post-acquisition,Chad Ovel,who
led the implementation team, said
the most crucial aspect was to agree
a plan with Golden Gate’s existing
management to focus on affordability
and scalability.
The most important metrics
decided upon were individual store
traffic growth and store expansion.
Key in Mekong Capital’s process
is to give portfolio companies access
to the relevant best practice opera-
tors across geographies.
Ovel told Private Equity Interna-
tional: “What we were consistently
doing was giving them access to
companies that had already gone
through that growth curve.It was not
about telling them what to do, but
about connecting them with industry
tough questions. It was really a case
of seeing is believing,” said Ovel.
A crucial KPI was same-store
sales growth. Ovel said some stores
had been experiencing a decline
in footfall, but by making sure the
management were incentivised to
grow it, a number of successful
marketing initiatives were launched.
“Trying to get the company to
own that goal took a lot of work,but
we started to see frequency of visits
improve and got them to think about
slowing the pace of expansion. This
is contrary to the experience in most
sectors including private equity,but
if you do it around sales growth, it
will help you continue to see positive
sales growth.”
A global expert in casual dining,
Joel Silverstein,enabled the group to
buy“the whole cow”;increasing the
yield of each cow to 90-95 percent
via special butchering techniques,
along with a recipe management
system and a lower average ticket
price at restaurants.
Once the store sales growth was
achieved the company went back to
a focus on store expansion,targeting
second tier Vietnamese cities. This
helped grow Golden Gate’s EBITDA
by 1.9x,and same store sales growth
from 2 percent to 9 percent between
2013Q1and2014Q2,resultinginan
estimated company value increase of
nearly three times in the 18 months
prior to exit.
A further sign of Mekong’s
future-proofing is that over the year
since exit, the group grew from 70
to 120 stores acrossVietnam. n
PEI Operational Excellence Awards 2015 Asia-Pacific
experts in the US and elsewhere.
“When we got them on a plane to
Hong Kong,or Tokyo,or Bangkok or
Shanghai, they would come back so
motivated to grow their own busi-
ness.”
Typically, the firm’s senior man-
agement would be taken away for
a full week and sat down with the
relevant manager in their respective
areas of the business.
“It could be a half day with the
central kitchen’s operations director,
and a half day with a finance director
for example. They could ask,‘How
do you create your bonus structure
or deal with the supply chain?’”
For Golden Gate’s chief execu-
tive, the visits led to what Ovel calls
a “pivotal moment” that completely
changed his outlook for the business.
Mekong Capital was also able
to leverage its GP and shareholder
network to introduce Golden Gate’s
management to best of class inter-
national restaurant groups.
“The hard part was getting
Golden Gate to come armed with
44.4%
Top line
revenue
growth over
hold period
37.8%
EBITDA growth
9.1x
Exit multiple
45.1%
IRR
Golden Gate:
same store sales
grew from
2 percent to
9 percent
between 2013
Q1 and 2014 Q2
29.
30. 28 private equity international october 2015
Headland Capital Partners:
Young Toys
WINNER — LOWER MID-MARKET
Before Headland Capital Part-
ners invested $53.4 million for a
96.5 percent stake in South Korean
toy manufacturer Young Toys in
December 2012, chief executive
Marcus Thompson admitted that
his firm had been sceptical.
The company was ranked fifth
among Korea’s toy manufacturing
brands and was facing severe margin
pressures in what was a very compe-
titive sector. Two factors persuaded
them to invest, however.
First, Thompson and his team
were attracted to the founder, who
they viewed as a “talented and pro-
fessional manager”, and, second, he
had bought in the use of animated
media to advertise the toy products.
Animation media in Korea is rela-
tively cheap,and good animation can
be executed at relatively low-cost in
the country.
Thompson told Private Equity
International that part of the foun-
der’s philosophy was that toys were
not just about the physical object,but
also the character that they created
in the child’s mind,so animation was
used creatively to that effect.
Headland’s team helped the group
refresh Young Toys’ offering. Until
then, all products had catered for
three- to six-year-olds, but toys
for older boys were also put on the
agenda. Adding a Confucian set of
values to some of the characters,
such as helping friends,looking after
grandparents or obeying parents,
were all aspects that would play well
within the regional market.
Thompson said that the group
opened up the equity to create an
options pool which allowed the firm
to bring in more talent from within
Korea.
“A PE-backed firm with equity on
the table is an attractive opportunity
and allowed the company to be more
entrepreneurial,” he said.
Three key hires were instrumen-
tal in the success story; a head of
international sales, a product mar-
keting manager and a CFO.
Thompson said a key challenge
to growth was having to withdraw
most of its toy production from
North Korea in a period of political
instability,but the company has been
able to diversify the manufacturing
base, with six new manufacturing
sites in China and Indonesia.
The next stage for its new owners
is to expand the group in China,
Thompson said.
At the time of the investment by
Headland’s Private Equity Fund 6,
Young Toys had 66 stock keeping
units (SKU) and a 2012 EBITDA of
$12 million. By the time the invest-
ment was fully exited in May 2015,
Young Toys had grown to 108 SKU
offerings with four toy brands and a
2014 EBITDA of $29 million.
In August 2013 and May 2014,
Headland recovered $23 million of its
investment cost as a result of a capital
reduction exercise by YoungToys and
inMay2015itsolditsshareholdingto
PAGAsiaCapitalforatotalconsidera-
tion of $151.4 million, representing
a gross investment multiple of 3.2x
and an IRR of 72.5 percent.
The judges were suitably
impressed, with Bain & Company’s
Suvir Varma describing it as an
“unbelievable operational excel-
lence story”.
He added: “A focused toy com-
pany with a small and narrow pro-
duct range upon entry, but with a
loyal customer base [grew to] 72
percent IRR, 6x EBITDA and 3.5x
revenues in three years. Headland
basically took a small company and
madethemthenationalmarketleader
in toys in three years. Amazing.” n
Young Toys:
‘Headland took
a small company
and made them
the national
leader’
PEI Operational Excellence Awards 2015 Asia-Pacific
3.2x
Multiple
72.5%
IRR
$12m
2012 EBITDA
$29m
2014 EBITDA
31. 29october 2015 operational excellence special 2015
Tokio Marine Capital:
Bushu Pharmaceuticals
WINNER — UPPER MID-MARKET
WhenTokio Marine Capital (TMC)
acquired contract manufacturing
organisation (CMO) Bushu Phar-
maceuticals in March 2010 it was
a non-core business of Shionogi
Group, one of Japan’s leading new
drug manufacturers.
TMC already had previous
experience of investing in Japanese
healthcare firms such as generic
drugs manufacturer Showa Yakuhin
Kako and Japan Medical Data Centre,
and it saw Bushu as well placed to
grow its production and add foreign
pharmaceutical companies to its cus-
tomer base.
Bushu was ranked second in
Japan’s fast-expanding CMO market,
but TMC’s first priority post-acqui-
sition was investing to upgrade the
business to deal with this anticipated
growth in demand.
TMC president Koji Sasaski
told Private Equity International that
prior to the investment, Bushu had
merely been the factory, but post-
investment, there was a gradual
integration of the factory and the
business to create a renewed focus
on improving profitability.
Sasaki and a colleague were
assigned to work closely with the
company and monthly meetings
with Bushu’s senior management
were conducted.A number of core
staff members were also seconded
from Shionogi to Bushu and a new
compensation plan was put in place
to align interests.
Sasaki said that all the new pro-
jectsembarkeduponutilisedspecialist
consultants which helped to affect a
significant increase in production.
Projects included shortening pro-
duction lead-times, optimising and
streamlining staff assignment, and
reviewing flow lines in the plant.
Together these initiatives resulted
in an increase in productivity of
more than 10 percent during the
project’s first year and an additional
increase of over 20 percent in the
following year.
Bushu had previously used a core
sales team of just four people, but
Sasaki says that was“at least doubled”
under TMC’s stewardship.
As a Shionogi subsidiary, the
sales team’s main role had been to
maintain relationships with existing
customers,and because many leading
new drug manufacturers that com-
peted with Shionogi were reluctant
to do business with Bushu, creating
new business lines was a tough task.
After TMC acquired Bushu, its
new-found independence saw a
number of foreign new drug manu-
facturers show interest, allowing it
to expand its global presence with
a renewed focus on high-quality
products.
TMC also helped Bushu estab-
lish a new business strategy division,
hiring a specialist who had previously
worked alongside the president of
a foreign pharmaceutical manufac-
turer, as section head. Segregated
marketing strategies were estab-
lished for different customers and
the number of corporate customers
grew by about 30 percent in the five
years after the acquisition.
TMC conducted a refinancing of
its LBO loans to free-up equity to
acquire the Misato production plant
from Eisai in December 2013. This
gave Bushu a second production
plant, enabling it to triple annual
production capacity from 3.5 bil-
lion tablets to 10 billion.
Bushu became Japan’s number
one dedicated CMO company with
sales increasing from ¥10 billion
at the time of the investment (31
March 2010) to ¥26 billion as at
31 March 2015. EBITDA increased
from ¥1.6 billion to ¥6.5 billion over
the same period. n
Bushu: became
Japan’s leading
dedicated
contract
manufacturing
company
Asia-Pacific PEI Operational Excellence Awards 2015
6.0x
Exit multiple
45.7%
IRR
2.6x
Top line
revenue
growth
4.1x
EBITDA growth
32. 30 private equity international october 2015
CVC Capital Partners: HKBN
WINNER — LARGE CAP
Hong Kong’s residential broadband
market is among the most competi-
tive in the world. It was a market
which CVC grabbed by the horns
after its 100 percent buyout of Hong
Kong Broadband from City Telecom
(HK) for HK$5 billion ($645 mil-
lion; €578 million) in May 2012.
The judges were impressed by
CVC’s success in tapping significant
resources from its global teams to
boost performance and add value
across a range of the company’s divi-
sions, from its operations team to its
global TMT team,and from its finan-
cing team to its capital markets team.
CVC’s Alvin Lam, who led the
implementation plan, says his firm
inheritedastrongmanagementteam,
butonethathadbeenbunkereddown,
scrapping for market share against
larger rival Hong Kong Telecom.
CVC’s initial value creation plan
targetedthefirm’saveragerevenueper
mobilecommunicationuser(ARPU).
“[Previously], the firm had had
to compete purely on price, but
with AlixPartners, HKBN identified
thesmalloffice/homeofficeandsmall
and medium enterprise sectors as the
potentially most attractive.
Withastrengtheningofthemana-
gement of HKBN’s Enterprise Solu-
tions team,CVC was able to develop
new products such as cloud services
to focus on this particular market.
The acquisition of Hong Kong
Wi-Fi network Y5Zone in January
2013,after a joint HKBN/CVC due
diligence and negotiation process,
allowed HKBN to not only prevent a
competitor from buying one of only
two Hong Kong Wi-Fi networks,but
also to win a major corporate con-
tract with Ocean Park to launch a
Wi-Fi service and mobile apps.
“The acquisition of the Wi-Fi
company was seemingly well-
executed and strategically sound,”
Jephcott added.
Other initiatives included boos-
ting the efficiency of the Guangzhou
call centre, which began with a visit
to CVC’s Philippines-based portfolio
company, call centre specialist SPi
Global, and an early key hire of a
new CIO who helped develop a long-
term IT strategy.
Thisidentifiedareasthathadmade
SPi Global over 20 percent more
productive than HKBN’s agents and
allowed HKBN to focus on improving
those areas.The upshot was revenue
and EBITDA growth of 8 percent
and 14 percent respectively under
CVC’s stewardship,and the success-
ful IPO of HKBN in March 2015
yielded a 3.6x multiple and a 58
percent IRR. n
PEI Operational Excellence Awards 2015 Asia-Pacific
we made that a more segregated
approach to improve the ARPU,”
Lam said.
CVC had worked with HKBN’s
marketing team to segment the cus-
tomer base by demographics and
broadband usage patterns.
This allowed HKBN to develop
several bundles targeting the differ-
ingcustomersegmentsandtheupshot
was a monthly residential ARPU
increase from HK$155 in August
2012 to HK$184 in February 2015.
Significantly, over the time
period, monthly customer churn
rate was kept well below 1 percent.
Dominic Jephcott, chief execu-
tive of Vendigital and one of the
judges, was impressed by CVC’s ini-
tial focus on growing the top line
through that segmentation.
“It gave useful insight that was
acted on to increase ARPU,”he said.
CVC also helped grow the com-
pany’s customer base beyond its
residential roots into the competitive
corporate business sector.By working
14%
EBITDA growth
of HKBN
under CVC’s
stewardship
3.6x
Exit multiple
realised
by CVC on
HKBN’s
flotation
58%
IRR realised
on flotation
Making a splash:
HKBN grew its
customer base
beyond its
residential roots
into the corporate
business sector
33. FOR MORE INFORMATION, VISIT THE PEI BOOKSTORE:
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34. 32 private equity international october 2015
PEI Operational Excellence Awards 2015 EMEA
Aurelius: Connectis
WINNER — SMALL CAP
Switzerland-based ICT company
Connectis was generating revenues
of SFr73.3 million (€66.8 mil-
lion; $75 million) and EBITDA of
SFr500,000 when it was acquired by
Germany-listed investment company
Aurelius in 2008,in a deal valuing the
business at €1.7 million.
Fast-forward six years and Aure-
lius was selling Connectis to strate-
gic investor SPIE Group,a European
multi-service provider in the fields
of electronics and information tech-
nology, mechanical engineering and
building services, in a deal valuing
the business at SFr48 million.During
the hold period Aurelius had boosted
revenues 87 percent to SFr144.5
million, grown EBITDA to SFr9.1
million, and increased employee
numbers from 220 at entry to more
than 300.
“Eighty-seven percent revenue
growth translated into 18 times
EBITDA growth and only 40 per-
cent increase in personnel speaks for
operational excellence,” said judge
Thomas Pütter.
Aurelius acquired Connectis from
Swiss Sunrise Group, and the firm’s
specialist operational team immedia-
tely set about developing a business
strategy, which included supporting
both organic and acquisitive growth.
Aurelius’ Matthias Täubl led the
team, becoming chief executive
to lead the turnaround alongside
management. Aurelius appointed a
group of operational specialists from
its “task force”, a team of more than
35 Aurelius employees who work
in addition to the deal team. This
“The operational focus is evi-
denced by the full-time appointment
of an Aurelius partner as CEO and
the application of different opera-
tional specialists at different points
in time to respective tasks in the
company,” Pütter added. “Busi-
ness innovation, personnel changes
and supply chain improvements all
combined to bring about the turna-
round.”
At the time of exit Connectis had
grown to the second largest ICT pro-
vider in Switzerland,offering its cus-
tomers solutions for secure networks
and applications in voice, data and
video communications, along with
unified communications and work-
space management services.The sale
provided Aurelius with a staggering
return on investment of 25.7x.
“This was my clear winner in the
category both because of the size of
the transformation and the clear
involvement of the fund,” Graham
said. n
meant that the right expertise was
applied throughout the investment
period as the business grew.
“I assumed that maybe there had
been a stellar CEO – but to see that
one of Aurelius’ operating team had
stepped in to run the turnaround
as CEO, it’s clear that this wasn’t a
firm trying to take credit for mana-
gement’s hard work,” judge Miles
Graham said.
Aurelius also brought in further
members of its task force in part-
time roles throughout the invest-
ment period to support the team
already in place.
On the organic growth side,
Aurelius helped Connectis expand
its product portfolio toward higher
margin solutions, including shifting
from a low profitability, one-time
re-sale business to a recurring ser-
vice business of long-term contracts.
Aurelius helped to drive innovation
within the business, making stra-
tegic personnel appointments and
improving efficiencies in the supply
chain.
Aurelius also provided acquisition
financing and operational support for
Connectis’ buy-and-build strategy.
Deals completed under Aurelius’
ownership included: the acquisition
of Telindus in 2009, through which
Connectis took over Telindus CH’s
employees and clients; the takeover
of Grouptex in 2011; the acquisi-
tion and integration of Getronics
Switzerland; and the acquisition of
NEC Unified Communications in
Switzerland,which was subsequently
rebranded to Softix.
25.7x
Return multiple
5th
Player in Swiss
market at entry
2nd
Player in Swiss
market at exit
SFr0.5m
EBITDA on
entry
SFr9.1m
EBITDA on exit
Connectis: sale
provided Aurelius
with a return
on investment
of 25.7x
