At Private Equity International’s fifth annual Operating Partners Forum Europe, KKR Capstone managing director Juan de Ochoa claimed KKR created the “100 day plan”, used by private equity firms to kick-start value creation initiatives in recently-acquired portfolio companies.
“KKR is probably the company that invented the 100-day plan,” de Ochoa told delegates. “Then we set up KKR Capstone to actually run that and do that.”
In 2000 KKR hired former Boston Consulting Group executive Dean Nelson to form KKR Capstone, a consulting group which works on operational improvements within KKR’s portfolio companies.
De Ochoa described the 100-day plan as “the hinge between the investment case and management, so how to make things real and measurable”.
Discussing the way value creation plans have evolved in recent years, de Ochoa said that although the topics may have changed – for example, an increased focus on digital capabilities – the fundamentals remain constant.
“The essence of the plan is still the same,” he said. “It’s how you can convert an investment case which has been approved in an [investment committee] somewhere and make that an operational plan that you can actually measure on a periodic basis.”
A significant change at KKR Capstone – and one echoed by speakers earlier in the day from BC Partners, CVC Capital Partners and Cinven – is operations teams getting involved in deals earlier in the process.
“The way we’ve set up the KKR Capstone team now is that 25-30 percent of the team now dedicates their capacity to due diligence, once it’s in a phase where there’s a good degree of certainty that the deal’s going to happen,” de Ochoa said.
Fellow panellist Stefano Santarelli, a portfolio management senior principle at Teachers’ Private Capital, part of Ontario Teachers’ Pension Plan, said there was little difference between the operational capabilities of the pension fund’s direct investment team and that of traditional private equity firms.
“Obviously we’ve doubled our portfolio team size in the last couple of years, and it’s still evolving, but I think the must haves that we really try to deploy against our portfolio – value creation plan, talent, governance – I think the play-book is quite similar.”
However, Marcus Brennecke, partner and head of equity for the DACH region at EQT, said the depth of the networks and breadth of experience fund managers bring is tough to replicate.
EQT works with a network of 300 industry advisors, one of whom will be appointed as board chair at each of its portfolio companies. The board chair will be invited to invest in both the portfolio company itself and also the EQT funds. Each of these industrialists, which the firm knows personally, are trained by EQT, Brennecke said.
“We train them [in] how our value creation plans have developed, on our different levers,” he said.
“A chairman of a portfolio company would always be someone with whom we have worked a couple of times already. So that’s something different, and it’s not so easily and so quickly replicated in a short period of time.”