Now in their seventh year, our annual Operational Excellence Awards showcase the best examples of value creation by general partners. Here are the key strategic takeaways from this year’s honour roll.
1. ADD-ONS ADD VALUE
Bolt-on acquisitions are probably the single most favoured strategy by our Operational Excellence Awards winners, with Nordic Capital alone completing 13 add-ons for its investment in payments business Bambora, winner of the EMEA large-cap category. “A truly exceptional case,” said judge Katja Salovaara, a senior portfolio manager at Ilmarinen. Other GPs to successfully pursue a buy-and-build approach for their winning entries included Partners Group which completed more than three bolt-ons of more than $100 million for its Hong Kong-headquartered apparel label manufacturer Trimco International.
2. EMBRACE NEW FRONTIERS
Operational Excellence Awards judge Joncarlo Mark says a more international outlook – what he describes as “geographic value creation” – is one of the new frontiers for operating partners, with even mid market firms “much more global” than they used to be. That’s borne out among this year’s winners where there were some noteworthy examples of international growth – especially in the US – boosting the bottom line. EQT Partners formed a dedicated US advisory board for its sports data firm Sportradar to target the opening of the US sports betting market. Meanwhile, KKR’s white goods manufacturer Qingdao Haier pulled off one of the largest-ever transactions by a Chinese company when it bought Kentucky-based GE Appliances from parent company General Electric in a (successful) bid to bolster its US presence.
3. DON’T SCRIMP ON AD SPEND
When L Catterton created a strategic plan for upmarket pet food brand Ainsworth Pet Nutrition, the main focus was a nearly tenfold increase in consumer advertising spend. The strategy paid off spectacularly. The first TV ad garnered a string of awards, and, within two years, its main Nutrish brand was the fastest growing consumer packaged goods brand in the US, according to Nielson, with L Catterton securing a gross cash-on-cash return of 8x on exit.
4. STICK TO WHAT YOU KNOW
Among the winners, it was notable how many of the GPs had previous experience in that particular portfolio company sector. L Catterton attributes at least part of the spectacular growth of Ainsworth Pet Nutrition to its prior success in the pet food category. Meanwhile Cerberus Capital Management leveraged it’s “experience with global automotive businesses, highly complex corporate carve-outs and operational turnarounds” for its impressive restructuring of troubled auto interiors business Reydel Automotive, according to senior managing director Dev Kapadia.
5. QUALITY COUNTS
Unsurprisingly, perhaps, product quality was a focus for many of the award winners. Carlyle Group transformed Spanish data centre operator Telvent by focusing relentlessly on “high-end connectivity driven customers” and Brookfield Asset Management says a focus on product quality was at least partly responsible for what the judge Steve Kaplan termed “a stunning improvement” at electrode producer GrafTech International.