Executing value creation plans to maximize returns 2 April 2013
Jan 13, 2015
Executing value creation
plans to maximize returns
2 April 2013
Page 2 © 2013 Ernst & Young LLP
Executing value creation plans
Disclaimer
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Page 3 © 2013 Ernst & Young LLP
Executing value creation plans
Today’s moderator
Kerrie MacPherson Ernst & Young LLP
Financial Services Office, Advisory
Join today's Twitter discussion: #EY_ValueCreation
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Executing value creation plans
Today’s agenda
► Private equity market environment
► PE value creation framework
► Creating value across the investment lifecycle
Join today's Twitter discussion: #EY_ValueCreation
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Executing value creation plans
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.
Page 6 © 2013 Ernst & Young LLP
Executing value creation plans
Fact check
Which of the following do you represent?
A. Private equity
B. Publicly-traded corporation
C. Private equity investee
D. Other
Page 7 © 2013 Ernst & Young LLP
Executing value creation plans
Today’s agenda
► Private equity market environment
► PE value creation framework
► Creating value across the investment lifecycle
Join today's Twitter discussion: #EY_ValueCreation
Page 8 © 2013 Ernst & Young LLP
Executing value creation plans
Private equity activity
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.
Deal va
lue (
$U
S b
illio
ns)
$0
$200
$400
$600
$800
$1,000
$1,200
2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2012
YTD 2013
Acquisitions Exits
Page 9 © 2013 Ernst & Young LLP
Executing value creation plans
US leveraged loans and high yield
$0
$50
$100
$150
$200
$250
$300
$350 Leveraged loans High yield
US
$ b
illio
ns
Source: S&P Leveraged Commentary and Data M&A Stats, February 2012
and February 2013 release.
Page 10 © 2013 Ernst & Young LLP
Executing value creation plans
Why value creation initiatives matter now
► Use of leverage for value
creation has declined
► Multiple arbitrage has less
potential
► Assets have been purchased at
relatively high valuations
► Holding periods are longer
Of 6,882 portfolio companies,
45% were acquired in 2007 or prior
Holdings by vintage year
2007 and prior 45%
2008 13%
2009 7%
2010 12%
2011 16%
2012 7%
Page 11 © 2013 Ernst & Young LLP
Executing value creation plans
Today’s agenda
► Private equity market environment
► PE value creation framework
► Creating value across the investment lifecycle
Join today's Twitter discussion: #EY_ValueCreation
Page 12 © 2013 Ernst & Young LLP
Executing value creation plans
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
Page 13 © 2013 Ernst & Young LLP
Executing value creation plans
How leading private equity firms are creating value
Other 3%
26% 24% 20% 17%
13%
Geographic expansion
Price increases and
improved selling
Market demand
Change of offering
New products
Organic revenue growth drivers
40% 27% 23%
6% 4%
Operational efficiency
Procurement Improved financial
systems and controls
HQ overhead Capacity adjustments
Cost reduction drivers
Organic
revenue
42%
Cost
reductions
29%
Acquisitions
25%
Page 14 © 2013 Ernst & Young LLP
Executing value creation plans
PE expectations
of portfolio/
exit strategy
Portfolio
capital agenda
Portfolio
commercial
strategy
Market and
regulatory
requirements
Revenue
enhancement
Margin
improvement Capital efficiency
Value creation drivers
Strategic alignment
Value creation enablers
IT systems/
tools People
Business
intelligence
Risk
management Operations
capability
Value creation framework
Page 15 © 2013 Ernst & Young LLP
Executing value creation plans
Revenue enhancement
► Pricing and promotions
► Marketing effectiveness
► Channel strategy
► Mergers and acquisitions
► Geographic expansion
► Account management
► Sales force effectiveness
Revenue
enhancement
Margin
improvement Capital efficiency
Value creation drivers
Page 16 © 2013 Ernst & Young LLP
Executing value creation plans
Margin improvement
► Strategic sourcing
► Procurement transformation
► Manufacturing strategy
► Plant productivity improvement
► Logistics cost reduction
► Organizational design
► Overhead cost reduction
► Finance transformation
Revenue
enhancement
Margin
improvement Capital efficiency
Value creation drivers
Page 17 © 2013 Ernst & Young LLP
Executing value creation plans
Capital efficiency
► Working capital improvement
► Fixed asset optimization
► Capital expense optimization
► Restructuring/divestment
► Liquidity enhancement
Revenue
enhancement
Margin
improvement Capital efficiency
Value creation drivers
Page 18 © 2013 Ernst & Young LLP
Executing value creation plans
PE expectations
of portfolio/
exit strategy
Portfolio
capital agenda
Portfolio
commercial
strategy
Market and
regulatory
requirements
Revenue
enhancement
Margin
improvement Capital efficiency
Value creation drivers
Strategic alignment
Value creation enablers
IT systems/
tools People
Business
intelligence
Risk
management Operations
capability
Value creation framework
Page 19 © 2013 Ernst & Young LLP
Executing value creation plans
Today’s agenda
► Private equity market environment
► PE value creation framework
► Creating value across the investment
lifecycle
Join today's Twitter discussion: #EY_ValueCreation
Page 20 © 2013 Ernst & Young LLP
Executing value creation plans
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
Page 21 © 2013 Ernst & Young LLP
Executing value creation plans
Creating value across the investment lifecycle
Pre-purchase
Holding period Exit
Value
creation
plan
Value
creation
refresh
Exit
readiness
Implementation
and monitoring Diligence/ insights
Foundation for
purchase decision
and holding period
initiatives
Critical to achieving
investment thesis Helps enhance exit
valuation and
expedite close
Page 22 © 2013 Ernst & Young LLP
Executing value creation plans
► Value creation insights on performance
issues and upside opportunities
► Diligence insights
► Value creation plan
Pre-purchase
Diligence/ insights
Page 23 © 2013 Ernst & Young LLP
Executing value creation plans
► 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
Holding period
Value
creation
plan
Implementation
and monitoring
Page 24 © 2013 Ernst & Young LLP
Executing value creation plans
► 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
Value
creation
refresh
Exit
readiness
Exit
Page 25 © 2013 Ernst & Young LLP
Executing value creation plans
Recap
One-
minute
recap
Page 26 © 2013 Ernst & Young LLP
Executing value creation plans
Resources
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Executing value creation plans to maximize returns
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Executing value creation plans
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