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Now in their eighth year, entries to our annual Operational Excellence Awards never fail to provide a rich variety of insights. Here are five key lessons to take away from this year’s showcase of the best and brightest work done by general partners to transform companies.
Whether companies are embracing ESG as a way to increase productivity or beefing up their offerings with a string of bolt-ons, expanding their horizons geographically or looking to innovate with research and new products, the best GPs formulate a strategy and commit to executing it.
1 Strong leaders get strong results
New blood can always help, but it was striking how many entries replaced not just the CEO or a couple of senior figures, but the entire board. That was certainly true of AniCura, a veterinary care company within which Nordic Capital acquired a majority stake in 2014.
The appointment of a new board, with a new CFO and in-house M&A function, helped to turn what had on entry been a 50-clinic company in Scandinavia into a leading pan-continental platform four years later. Nordic invested heavily in professionalising AniCura, creating a new organisational and operational structure and installing a whole corporate culture.
It was a similar story for one of our Americas winners, as L Catterton built Zarbee’s Naturals from a four-man team selling one product to a nationwide business with a full suite of offerings. It did so by building the entire management team, starting with the CEO but also including a chief customer officer, chief marketing officer, and chief product and strategy officer.
The same theme played out in Asia-Pacific, as Blackstone installed a new CEO and senior board members at global business process management provider Intelenet Global Services. With affordable housing finance company Aavas Financiers, Partners Group targeted executives specifically to drive better branch service, to drive a ‘digital first’ model, and to preserve its culture.
In the case of New Zealand-based Manuka Health, Pacific Equity Partners built a fresh board with one consideration always front and centre – ESG. New appointees were specifically chosen for their expertise in food products, agribusiness and social responsibility.
2 Embracing ESG enhances earnings
Manuka honey producer Manuka Health truly took ESG to heart, as did many of this year’s entries. Not only was the new management team picked with ESG factors in mind, but the company worked to identify land suitable for regeneration and led industry engagement with regulators both domestically and in key export markets to tackle counterfeit production. It also implemented an initiative pioneering the use of climate and bloom monitoring technology.
“Embracing ESG does not mean having to compromise on earnings ”
Not many companies could do more on ESG, but ELIX Polymers, a supplier of ABS polymers and products used in the manufacture of consumer goods, electronics, medical devices and automotive dashboards, which Sun European Partners acquired in 2012, excelled in coupling strides forward in ESG with leaps in earnings.
The plastics industry faces ongoing challenges around environmental impact, but ELIX reduced its energy consumption and its greenhouse gas emissions – each by more than 10 percent – and reduced waste generated per tonne manufactured by almost 5 percent. It also increased R&D spending on sustainable products markedly, all while EBITDA quadrupled over the hold period. Embracing ESG does not mean having to compromise on earnings.
3 Smart acquisitions achieve pole positions
With its new leadership in place, AniCura set out on an aggressive growth plan which took it from 50 clinics in just three countries to more than 200 across 11. There were 150 acquisitions completed in just three years.
The extensive expansion broke the veterinary care provider out of Scandinavia and across Europe. By increasing the company’s presence so dramatically, Nordic Capital turned AniCura into a continental leader.
A similar strategy worked for Arbor Investments on the other side of the Atlantic. Arbor transformed five regional bakeries into one large continental operation, Rise Baking Company.
Rise’s ascension began with the acquisition of an artisan bread manufacturer in 2013. After five years, a succession of cookie and dessert bar manufacturers had been added to create a high-quality bakery with a suite of products and manufacturing assets stretching from coast to coast.
Add-on growth was crucial for a very different American company, Selmet, which manufactures titanium castings for the aerospace industry. Under Blue Point Capital Partners’ guidance, it absorbed Onamac Industries and Western Metrology to both expand its geographical footprint and add machining capabilities the company did not have.
Back in Europe, the same winning strategy helped EQT Partners to pick up a second award – Outstanding Achievement in Innovation – for automation and robotics specialist Piab. Piab bought four strategic bolt-ons – Kenos, Vaculex, SAS Automation and Feba Automation – in the space of only two-and-a-half years.
4 Travel broadens the mind – and earnings
Seeing more of the world isn’t just good for individuals, it is a very sensible approach for portfolio companies as well. It certainly helped EQT portfolio company AutoStore, a warehouse automation company.
EQT increased AutoStore’s focus on a clutch of key, high-potential geographies – the US, France, Germany, Japan and the UK – but it also expanded into eight new countries. The expansion helped AutoStore to take advantage of industry tailwinds from megatrends such as e-commerce, advances in technology and growth in global urbanisation.
“Seeing more of the world is a very sensible approach for portfolio companies”
Transnorm, another warehouse automation business, this time held by IK Investment Partners, also got ahead through developing its footprint overseas. The company is headquartered in Germany, but looked to develop its footprint in both North America and Asia, with the Americas and Asia-Pacific accounting for 28 percent and 8 percent, respectively, of its sales last year. Transnorm’s dedication to international expansion also saw it open a centralised production site in Thailand and establish a Chinese entity with a dedicated sales team and local warehouse.
Piab was another portfolio company to look beyond Europe, particularly to China. It installed a country head, a trio of sales managers and a team of full-time sales employees. Its revenues in that market accelerated to 50 percent run-rate growth and formed a significant factor in its subsequent purchase by Patricia Industries as EQT exited.
5 R&D reaps dividends
Doubling down on R&D proved to be another popular play. All three EMEA winners built their success by prioritising R&D.
For EQT Partners with AutoStore this has been accompanied by a significant uptick in intellectual property efforts. In fact, the company has been the most frequent filing company in Norway over the last two years, increasing its number of patent filings by 250 percent.
Fellow warehouse automation business Transnorm enjoyed significant investments into R&D on IK Investment Partners’ watch, as the company sought to meet the demands of the parcel and e-commerce industries, including singulation and sorting solutions.
EQT’s other automation portfolio company, robotics specialist Piab, also leant heavily on R&D. Significant investment in innovation and product development played a key role in its ability to release eight new products each year.
Automation was also key for Intelenet Global Services, the global business process management provider which Blackstone acquired for a second time in 2015. It created a dedicated team to develop automation tools, including an analytics tool for unstructured data, a natural language processing tool to calculate fares, and a robotics solution for improving customer experience.
Meanwhile, Nordic’s AniCura also invested to keep itself at the cutting edge of its industry, building a specialist veterinary neurological centre in Sweden. AniCura Albano Animal Hospital is Scandinavia’s first specialist neurological centre within veterinary medicine and is located in Stockholm.
The variety of stellar outcomes the winners of our Operational Excellence Awards 2019 have achieved is testament to private equity’s ability to transform companies for the better. It is what the awards are all about.