Just how do you successfully add value to a portfolio company? It’s a question that gets to the heart of the private equity world — now more than ever before. With opportunities for financial engineering severely limited and economic growth rates mired at rock bottom levels, delivering stellar returns depends increasingly on securing operational improvements at portfolio companies.
That’s why GPs worldwide have made huge efforts in recent years to bolster their operational arsenals in an effort to get the best out of their businesses. Some efforts, it would be fair to say, have been more successful than others.
This is where our Operational Excellence Awards come in. Now in their fifth year, we introduced these awards to try to answer a question that’s become increasingly important to LPs: who are the best operators in the industry?
To find out, we asked GPs to submit any investments either fully or partly realised since 1 June 2015 that they felt were a particularly good example of their ability to deliver operational value as owners.
Here are this year's winners:
Small cap: Serent Capital — Optimal Blue
Lower mid-market: the Riverside Company — Eemax
Upper mid-market: KPS Capital Partners — Motor Coach Industries International
Large cap: Permira — Intelligrated
Small cap: DRC Capital — PayDesign
Lower mid-market: Navis Capital Partners — Golden Foods Siam
Upper mid-market: NewQuest Capital Partners — China Hydroelectric Corporation
Large cap: Actis — Plateno
Entrants were asked to provide specific details of the changes and the initiatives they had undertaken, from product development, to acquisition activity, to supply chain improvement, to management enhancement.
And they were also asked to provide tangible evidence of how these initiatives created value, whether that was in terms of topline sales growth, productivity or capacity building. Impressive exit numbers were clearly a plus, but the main thing our judges were looking for was some genuinely transformative work.
Entries were invited from three regions — Americas, Asia-Pacific and Europe, Middle East and Africa. We then divided them into four categories, according to the deal’s entry price — large cap (greater than $500 million), upper mid-cap ($150 million to $500 million), lower mid-cap ($50 million to $150 million) and small cap (less than $50 million).
Next, we convened a distinguished panel of judges in each of the three regions; they were tasked with analysing the short-listed entries, debating their worth and reaching a consensus on which represented the best example of operational excellence in each size category.
It was a far from straightforward task. The range of entrants was mind-bogglingly diverse — a real testament to the incredible range of private equity-backed businesses — and the judges had their work cut out to pick a winner from the high quality of the submissions.
As Steven Kaplan, professor of entrepreneurship and finance at the University of Chicago’s Booth School of Business, put it : “This was a much more difficult year than any of the previous years. Almost all of the nominated deals would have been winners in previous years.”
Miles Graham, a former 3i executive and now managing partner at the Operating Partners Group, agreed: “I found that this year was far harder to judge than in the previous years.”
A hearty congratulations to all the winners, but most of all a sincere thank you to all the GPs that entered. It’s pleasing to see that, despite its critics, private equity is delivering true value creation across a vast range of industries around the globe.