executing value creation plans to maximize returns

Executing value creation

plans to maximize returns

2 April 2013

© 2013 Ernst & Young LLP

Executing value creation plans

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Today’s moderator

Kerrie MacPherson Ernst & Young LLP

Financial Services Office, Advisory

Join today's Twitter discussion: #EY_ValueCreation



Today’s agenda

► Private equity market environment

► PE value creation framework

► Creating value across the investment lifecycle




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.



Fact check

Which of the following do you represent?

A. Private equity

B. Publicly-traded corporation

C. Private equity investee

D. Other



Today’s agenda







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



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.



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%



Today’s agenda







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



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%



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



Revenue enhancement

► Pricing and promotions

► Marketing effectiveness

► Channel strategy

► Mergers and acquisitions

► Geographic expansion

► Account management

► Sales force effectiveness

Revenue

enhancement

Margin





Margin improvement

► Strategic sourcing

► Procurement transformation

► Manufacturing strategy

► Plant productivity improvement

► Logistics cost reduction

► Organizational design

► Overhead cost reduction

► Finance transformation

Revenue

enhancement

Margin





Capital efficiency

► Working capital improvement

► Fixed asset optimization

► Capital expense optimization

► Restructuring/divestment

► Liquidity enhancement

Revenue

enhancement

Margin





PE expectations

of portfolio/

exit strategy

Portfolio

capital agenda

Portfolio

commercial

strategy

Market and

regulatory

requirements

Revenue

enhancement

Margin



Strategic alignment

Value creation enablers

IT systems/

tools People

Business

intelligence

Risk

management Operations

capability

Value creation framework



Today’s agenda



► Creating value across the investment

lifecycle




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



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



► Value creation insights on performance

issues and upside opportunities

► Diligence insights

► Value creation plan

Pre-purchase

Diligence/ insights



► 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



► 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



Recap

One-

minute

recap



Resources

Log onto: www.ey.com/privateequity

Facebook: Ernst & Young transactions

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Executing value creation plans to maximize returns



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