Private Equity International’s Operating Partners Forum: Europe 2019 kicked off on Tuesday, with a focus on portfolio operational assessment and value creation. Men and women from the operational coalface discussed how to deliver value-creation strategies, create top-line growth and drive EBITDA improvement.
1. LPs want to see operating partners on the team, says operating partner
“LPs love to see the sharing of best practice across portfolio companies and the operating partners can be drivers of that,” said Conor Boden, head of portfolio board development at Advent International. LPs are increasingly focused on the operating partner’s role, but their inclusion comes at a cost that has to be justified. Christian Unger, partner at Partners Group, said he or she needs to be able to create EBITDA or otherwise generate momentum beyond what would be there.
2. Year-one growth matters
“Grow early, exit well,” implored Jim Corey, managing partner at Blue Ridge Partners. He noted that the correlation between year-one growth and good exits has been clearly demonstrated. If a manager waits three or four years before starting to pull levers for value creation, that is three or four years wasted and it is going to be tough to fundamentally reform the business. Gregg Meheriuk, senior vice-president at 24 Hour Fitness, agreed that it is impossible to start planning too early.
3. Pricing is overlooked
A greater focus on pricing would be broadly welcomed. Mark Billige, managing partner at Simon-Kucher & Partners, shared his firm surveyed operating partners on value-creation strategies and found pricing is frequently overlooked.
He said: “Private equity operating partners told us that they are all interested in volume growth and taking cost out. Of the three, the largely under-focused one is pricing. When we asked where the most ROI is, interestingly there is much bigger bang for your buck on pricing.”
4. Everything that can be automated will be automated
Automation is gaining traction and the future of the workplace is one where humans and bots work side by side, predicted Anubhav Saxena, executive vice-president at Automation Anywhere. “We have clients who will talk about Melissa or talk about Susie, and these are not human employees like you and me, but bots, that do HR work. With these HR bots you do not miss payroll or miss bonuses; everything is paid on time, they are available 24/7 and you get a chance to say what you want to them,” said Saxena.
There were a million digital workers deployed in 2018 but Saxena noted we are on course for 3 million or more digital assistants and colleagues in 2020.
5. The CIO role has evolved into a business role
“As a company is developing, the CIO should be at the table with the other business leaders, understanding the business and where it is headed, so that they can think about what the underlying technologies are that are required for the company to move forward,” said Georgette Kiser, operating executive at The Carlyle Group.
Kiser noted that when it comes to digital transformation, “process trumps technology all day long”. That means it is vital to understand the end-to-end processes and what makes that individual company make its money: what drives it, what customers are looking for and what employees want.