German efficiency

Tech-focused buyout firm Ventizz Capital brought its management consultants in-house this year, saving money and creating a better alignment of incentives.

It's not surprising that German technology buyout firm Ventizz Capital Partners would emphasise operational improvements in its portfolio company management model: the firm was founded by two longtime consultants. Helmut Vorndran spent 11 years at AT Kearney, and Reinhard Löchner worked as an internal consultant at automotive technology firm Robert Bosch.

In the firm's early days, Ventizz's portfolio was fairly small, so the two founders had time to work closely with each of the companies they invested in. But in the last two years Ventizz has grown dramatically. Its fourth fund more than tripled the firm's capital under management when it closed on €450 million at the end of 2007. Ventizz now manages 15 companies at various stages of development, and with €350 million in dry powder remaining in Fund IV, that number will only increase.

In order to handle the increased volume of work, the firm launched its own internal consulting arm in January, Ventizz Management Consulting. It will work exclusively with Ventizz's portfolio companies to optimise business processes and structures, accelerate growth, and enter new markets. In this economic environment, the new division will also help portfolio companies devise strategies to weather the downturn.

“We have always stressed a successful operational development of the companies, since the inception of Ventizz in 2000,” Vorndran says. “But the larger we have become, the more complex our operations have grown, the more necessary it was to establish a dedicated organisation to take care of the issue.”

Alignment of interests
Ventizz looks to spend between €30 million and €200 million during the first year of investment in a company. At that threshold, then, it doesn't make sense to hire a four-person team from a top -tier consulting firm, which could incur costs of up to €1 million a month, Vorndran says. Hiring an in-house team is far more cost effective.

But a more important driver of the decision to launch an in-house team was the desire to align the interests of the consultants with the fund.

“Having been a management consultant myself for 11 years, I can say the goal of a management consultant is naturally to maximise consulting income at the year end,” Vorndran says. “We need someone whose number one priority is to increase the value of the firm. This is only a possibility if you have in-house consultants who are incentivised over the long-term by participation in carried interest, which is driven by the success of the fund, which is itself driven by the value development of its underlying assets.”

The new consulting team is being led by Guido Bollue, a colleague of Vorndran's at AT Kearney. Bollue spent 29 years at AT Kearney, and was a principal of the firm when he left. Bollue is currently working with one other professional and Ventizz plans to hire three more professionals by the end of the year. Ventizz will look to hire from top-tier consulting firms – but the firm isn't all that interested in pursuing the most senior partners from those firms, who tend to spend most of their time bringing in business. Rather, Ventizz will focus on mid-level consultants who have spent their time on very operational projects, like purchasing cost savings, organisational restructuring and overhead restructuring, Vorndran says.

No financial engineering here
The new consulting arm is just one facet of the expansion and institutionalisation that has occurred at Ventizz in the last two years. The firm's previous funds had been domiciled in Delaware, and in 2007 Ventizz began domiciling funds in Jersey as well. That year Ventizz also hired new staff and opened a second office in St. Galen, Switzerland – a country with one of the most advanced high tech industries in the world, where Ventizz had already invested extensively. Ventizz is likely to open one more European office this year, Vorndran says, either in Austria, the Nordic region or the Benelux region.

2008 also saw the firm's most successful exit ever: the sale of a majority interest in ersol Solar Energy to Löchner's old employer Robert Bosch for €101 per share, or €550 million. Fund of funds HarbourVest, which has been a cornerstone investor in the last three Ventizz funds, said it was the largest single asset exit in its 25-year history.

Vorndran stresses that that success, like Ventizz's others, was the result of significant operational improvements that increased the value of the company, rather than financial engineering. Ventizz supported ersol's growth and the expansion of its business, making two add-on investments during the period of its ownership.

“We strongly believe that financial engineering is not enough to achieve success in private equity,” Vorndran says. “Therefore we always have focused on EBITDA growth and revenue growth. An analysis of our returns has shown that two-thirds of our success is based on the ability to achieve EBITDA growth.”

With leverage scarce and a new team of management consultants raring to go, Ventizz finds that analysis a heartening one.

Ventizz Capital Partners

Year founded: Key personnel:
2000 Andreas Marty, Chief Financial Officer
Katja Beyer, Officer Manager
Offices: Irene Meier, Assistant of Finance and Controlling
Düsseldorf, Germany
St. Gallen, Switzerland Funds:
Ventizz Capital Fund 1, €30 million, 2000
General partners: Ventizz Capital Fund II, €67 million, 2004
Dr. Helmut Vorndran Ventizz Capital Fund III, €125 million, 2006
Reinhard Löchner Ventizz Capital Fund IV, €450 million, 2007
Willi Mannheims