Private equity firms are falling short of their operational targets

31 July 2018

Firms in the private equity sector are falling short of their operational targets following an investment or acquisition, according to a new survey conducted among 50 mid-sized and large investors in Northern America and Europe.

The private equity sector is on a high. Globally there are now just under 8,000 investment firms – up from 4,000 in 2006 – that together hold around $2.8 trillion of assets under management.

These private equity parties are continuously on the lookout for the best deals in the market. These companies have substantial growth potential on the back of strategic changes, whether they stem from accelerated growth, cost synergies, or (portfolio) restructuring. Last year private equity firms spent, according to Bain & Company, a staggering $440 billion on buyouts worldwide. However, as per a new study by US-based operations consultancy Maine Pointe, much of this value is found to be lost in the execution phase.

The study, titled ‘2018 Private Equity Survey’, found that there is a gap between targets for cost reduction, cash flow, and/or growth and the actual value derived following roll-out of private equity-driven roadmaps and action plans. After investing in companies, private equity firms craft performance improvement plans. These plans typically average between 4-6 months, and yield, on average, between 1% to 20% EBITDA improvement with results taking around one year to impact financial statements. While the investors surveyed believe that, for good deals, the value potential should be between 30% to 50%, most (76%) are finding in practice that less than 30% of cost/cash reduction is directly driven by these initiatives.Private equity firms are falling short of operational targetsKey reasons behind the ‘value gap’ are, according to the respondents, a lack of appropriately skilled and qualified resources, time constraints, and difficulties getting CEO/management co-operation. “Finding the right individuals with the right experience on the ground is the main challenge,” said Dan Ginsberg, Executive at Maine Pointe. “This confirms what we are seeing in the market, that many private equity firms do not have the processes or the tools they need to evaluate the employees.” Across the board, only 44% of the respondents highlighted they had a formal resource evaluation process incorporated in their approach.

In light of rising valuations and growing anxiety to invest due to record-breaking levels of dry powder ($1.8 billion late 2017), the researchers believe it is becoming increasingly important for equity managers to know upfront how capable the acquired talent pool would be in realizing the master plan. The role of analysis is central, according to Ginsberg: “Operational due diligence already plays a significant part in the private equity partners’ decision to invest and will increase in importance in the next two years.”

In a bid to support operational plans, most private equity firms work with various third parties – operating partners – to achieve improved operating results. Operating partners typically bring in third party resources to support due diligence and improve data analytics and IT capabilities, as well as to support supply chain and operations improvements.

However, most investors are “struggling to get it quite right and measure performance,” commented Mark McTigue, Vice President at the consulting firm. “This is mainly due to operating groups heavily relying on their networks and word of mouth, as opposed to using data-driven results when selecting a third party resource.”

Ginsberg concluded, “Private equity is going through changes. A growing focus on value creation to achieve returns is forcing investors to advance their own operating models.”


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Former consultants join investment firm Carlson Private Capital Partners

17 April 2019

Carlson Private Capital Partners, a middle-market investment firm backed by the fortune of the Carlson family, has hired two former consultants – Cory Petersen, previously of PwC, and Stephanie Johnson, previously of Chartwell Financial Advisory.

Carlson is one of the largest family-held corporations in the US, and a global leader in the travel industry through its Carlson Wagonlit Travel brand. The corporation divested its Carlson Restaurants division when it sold TGI Fridays in 2014, and its hotels division when it sold Radisson to Chinese conglomerate HNA Group in 2016. Carlson continues to be based out of Minnetonka, Minnesota.

After selling off its restaurant and hotel divisions, the family-held company founded Carlson Private Capital Partners (CPC). The firm invests in leading middle-market businesses with $5-50 million in EBITDA and equity investments from $20-100 million. According to the firm, it provides the best elements of a traditional private equity firm with the capital and relationship benefits of a family operating network, and a more patient strategy focused on long-term value creation.Former consultants join investment firm Carlson Private CapitalCPC has now made two additions to its growing team, bringing aboard Cory Petersen and Stephanie Johnson. Petersen joins as vice president of finance and administration, while Johnson joins the firm as an associate.

In his new role, Petersen – a certified public accountant – will oversee all financial, administrative, and compliance responsibilities, while also supporting structuring, financing, and due diligence efforts for CPC’s investment opportunities. Petersen was previously a director at private equity firm Stone Arch Capital, which specializes in mid-market buyouts, industry consolidations, and recapitalizations.

Prior to Stone Arch, Petersen was a director in PwC’s M&A advisory practice, where he provided clients with strategic and financial advice on acquisitions and divestitures. He started his consulting career as an M&A manager at Deloitte.

Stephanie Johnson, meanwhile, joins CPC as an associate. Prior to joining the firm, Johnson was a corporate finance associate at Chartwell Financial Advisory, where she supported M&A, ESOP-related, and capital markets transactions. Before that, she was a healthcare investment banking analyst at multinational investment bank and financial services firm Jefferies.

“I am delighted to welcome both Cory and Stephanie to our growing team,” Andy Cantwell, CEO and managing partner of Carlson Private Capital Partners, said. “Our ability to add talented professionals who understand the unique needs of closely-held businesses allows us to tailor thoughtful investments and partner with management teams for long-term success.”