Best Practices Advisory, llc
Value creation from improved operating performance is the primary source of future value. Almost all studies agree that over 50% to as much as 70%+ of portfolio returns is directly correlated to the improved financial and operating performance of the portfolio companies, measured by increase in EBITDA. The big players like KKR, Welsh Carson, TPG, and Blackstone to name just a few - get it, invest in it - and ultimately profit from it. Each of those firms have an Operating Partner Framework.
While each PE firm may have a different construct for this group of experts and resources - their role and responsibilities are clearly defined - increase and improve the operational performance of the individual and combined businesses.
So how is it that an Operating Partner and PE Operating group deliver value?
1. Sole focus on Operational Value Maximization Plans allows unbiased, expert support and faster realization on improvements
2. Understand differences and similarities across all portfolio companies creates shared growth & savings performance
3. Owner of building, creating, sharing and monitoring continuous improvement initiatives for PE firm
4. Participates in monthly Operating Reviews and Board meetings to support growth and value creation
5. Provide Wing-to-Wing Fortune 500 expertise and best practices to all portfolio companies
Yet you don't have to be a billion dollar fund to justify the investment in an Operating Framework - because the operating returns realized will pay for that investment and more in less than 12 months.
I know of one PE firm - that in year 1 - in just procurement - was able to realize over $8.7MM in savings - which dropped directly to the bottom-line on 8 portfolio companies that participated. In the next year - the procurement savings increased to over $27MM with all 20 portfolio companies achieving savings. I'm not even including the improved operating performance from pricing, finance, HR, and other operational improvement initiatives which the Operating Partner framework realized.
The ideal Operating Partner is someone who has had "in-the-field" experience leading businesses and or teams in various market cycles, geographies and challenges. He is someone that has helped grow, turn-around, restructure, and merge operating businesses. He or she has boundless energy and an ability to drive change persuasively. The Operating Partner/Group is a multi-purpose Swiss army knife that gives the PE portfolio management team and portfolio companies a trusted and expert partner - on operational value maximization plans.