How to manage the "EBITDA bandwidth" for PE portfolio firms and outsource your operating partner’s capabilities
Von Johan Werbrouck, Managing Director Private Equity für Europe bei Resources Global Professionals* (RECN/Nasdaq)
Summary: In the area of private equity in Europe, RGP can be best defined as an extension to the operating partner’s capabilities (for mid-sized PE funds with 150 Mio-1Bn Euro Assets under Management) that most large funds deploy with in-house teams like Advent, KKR, TPG, CVC,... Our senior consultants and interim managers (former P&L executives, project and program managers) know how to quickly diagnose, design and implement the value streams to close the EBITDA gap towards the exit, all in collaboration with your management and deal partners. Depending on the available operational bandwidth, we can execute the value streams and the respective projects in a steerco of a Program Management Office.
As times of driving returns for LPs with arbitrage and leverage are long gone, operational value creation becomes the key to success. It is now about „managing the EBITDA bandwidth“, i.e. closing the performance gap measured in EBITDA between actual state and exit state. Large funds like Cerberus Capital, TPG, KKR, CVC, Advent, CD&R all have top operating partner teams and/or directors for operational services on behalf of the portfolio companies. Germany however as well as DACH based PE Funds in general, focus on a sweet spot of 75-150 Mio Enterprise value. As such, they look for the most sought-after targets in SME companies. Most of these companies are still run by their founder/patriarch. Often times they are very product/engineering-centric, but when it comes to scaling, putting governance in place (financial measures, middle management, ...) or focusing on driving value to the next level, in an international context (top line growth, digital,…) there is a clear gap. To validate this thesis for RGP in Germany, I launched a survey asking 200+ PE professionals about their challenges in value creation. Most of these mid-cap funds (150-1Bn Euro Assets under Management) neither have the Operating partner capacity nor KPI’s in place to measure their progress on how well they are on track to “move the EBITDA needle”. Increasingly, they replace traditional management consulting with different models and we are convinced to be ideally positioned in that sweet spot...
Overall, if you dive into the PE sourcing for Due Diligence or Post Acquisition value improvement you notice a big shift. While in the past all of the external work was done by external consultants (McK, BAIN & Co, BCG, Berger, ATK, LEK), they according to our survey nowadays only account for 30%. The remainder spreads on Subject proven experts and Interim Executives of high caliber with deep industry know-how, relevant for the target they go after. Having practical and implementable benchmarks prior to the auction scene in areas of direct procurement, debt renegotiation (for distressed assets), pricing, working capital, sales force effectiveness, IT,… is becoming key, because they are the reason why PE fund X is paying higher prices than PE fund Y, and can in the end “win the deal”.
The way to deploy proven industrial best-practices connected with the expected financial impact/synergies and insight on these benchmarks is becoming increasingly important to seal the deal. Finally, having been a former advisor at BAIN & Co, I realize that funds want senior “plug & play” people on board both in the due diligence stage for "one day answers" and even more in the post-acquisition stage, when the aim is to drive the EBITDA and trim the company towards the planned exit as supported by the investment thesis. See RGP in PE as an “Expert Boutique”, flanked by in-house senior industry directors and former management consultants who will run the workshops with the PE partners and their staff, and manage the PMO in case there are no operating partners.
Most of our professionals have been working 15-20 years in specific areas (be it lean, CFO, manufacturing, Sales, IT,). The delivery is instant, it's a senior "plug&play" business delivery model for PE funds and their portfolio companies.
Our USP’s for an optimal support of DACH PE-firms in the Mid-Cap segment?
Three dimensions are important to grasp our value proposition.
- “Reverse the pyramid”: We don’t work with juniors. We solve the problems of PE funds with senior professionals, either former Directors at management consulting firms or Executives, seconded by industry and/or functional experts.
- “Skin in the game”: Classic consulting houses still face issues with retainer/success fee models. As we believe in our approach, we dare to have skin in the game with the PE partners. The Return on Cost (RoC) on our interventions are competitive as we are all aligned. Funds do express their openness to operate in this model.
- Deployment of “proven methods”: We leverage best-in-class signatures of value creation models at PE-owned portfolio firms. The Standard methodology is set and the internal + scalable independent consultants work in a controlled/quality-vetted setting as for the method, activities, and deliverables we expect.
Steps for PE firms to assess the performance increases we can deliver:
What we offer is a low entry workshop, mostly after an initial discussion, to review the current portfolio firm or initiative project. The firm could be a recent acquisition or one with underperforming characteristics, but with pressure to bring it back to market perform status, prior to the planned exit. If there are no operating partners in the PE firm, they can review the different modalities to have these capabilities outsourced to us.
Johan Werbrouck | Managing Director EMEA Private Equity | Resources Global Professionals
M: +49 172 6990021
Johan Werbrouck, Managing Director Private Equity for EMEA of Resources Global Professionals (RECN/Nasdaq). Johan is a BAIN alumnus with an executive background at General Electric and deep understanding of the Private Equity challenges. He develops and rolls out new initiatives for clients in the area of international business development (M&A growth), top line growth and setting up PMO governance structures to drive EBITDA driven value creation programs.
RGP, the operating subsidiary of Resources Connection, Inc. (NASDAQ: RECN), is a multinational business consulting firm that helps leaders execute internal initiatives. Partnering with business leaders, RGP drives internal change across all parts of an enterprise – accounting; finance; governance; risk and compliance management; corporate advisory; strategic communications and restructuring; information management; human capital; supply chain management; and legal and regulatory.
RGP was founded in 1996 within a Big Four accounting firm. Today, RGP is a publicly traded company with over 3,300 professionals, annually serving over 1,800 clients around the world from 67 practice offices. Headquartered in Irvine, California, RGP has served 87 of the Fortune 100 companies. The Company is listed on the NASDAQ Global Select Market, the exchange's highest tier by listing standards. More information about RGP is available at www.rgp.com.