I was lucky enough to be invited to join nine other speakers for the ACG Value Creation Conference held earlier this month at the New York Athletic Club. The topic centered around how PE firms best position themselves to create value by getting operationally engaged in portfolio companies. Fellow panelists included:
- Alan Jones - Managing Director of Morgan Stanley, Senior Advisor to Morgan Stanley Capital Partners (MSCP) and Vice Chairman of Private Credit & Equity
- Jon Weber - Head of Portfolio Company Management, BlueMountain Capital Management
- Sharon Daley - Partner, Portfolio Operations, Blackstone
- Kelley Morrell - Managing Director, Tactical Opportunities, Blackstone
- Jill Wight - The Carlyle Group
- David Buckley - Operating Principal, General Atlantic
- AJ Brohinsky, Partner at Caisse de Dépôt et Placement du Québec
- Bob Lobley, Partner, Juna Equity Partners
- Suraj Ramdas, Business Management and Strategy, BlueMountain Capital Management
Presenters discussed how their firms use their operational capabilities to identify and mitigate risks during due diligence to create incremental value as an investor. The panelists also shared best practices on operational value added with particular focus on how to leverage talent to create an investing edge. Top Ten Highlights include:
- There are many ways to divide carry but some thought carry in a fund and not just in individual deals drove partnership and alignment.
- The Value Creation Plan (“VCP”) needs to be set during diligence with operational input. Then the five or so pillars of the VCP need to be up on the screen at the beginning of each Board meeting and visible in the Key Performance Indicators (“KPIs”).
- Operating Partners need a substantial dose of EQ. The IQ is obvious, but knowing how to partner with Management and partner with Deal teams requires a deft touch.
- Independent Board Directors are one of the more underutilized arrows in the VCP quiver. The right ones can help maximize the opportunity for top decile returns.
- Talent is the biggest driver of alpha and top talent is worth the cost.
- Culture is key and “tissue rejection” of a poor leader and this leader’s impact on the firm is one of the biggest killers of alpha.
- Healthcare is often a large line item so “self-insurance” at a portfolio company or aggregating the pool across all the portfolio companies can be a big cost saver.
- Playbooks are nice, but most deals are bespoke so it can be a mistake to rely too heavily on them.
- When determining the right leaders, there is a balance between scientific rigor and trusting your gut – you need both, but your gut should be the tie-breaker.
- What are you doing that is unique in your sourcing, diligence and ownership plan? You need to have at least one in each bucket with a preference for several and this should feed into the VCP.
Scott is a Partner at Lancor and has over 20 years of deal generation, M&A, financial services and executive recruiting experience. He leads Lancor's New York City office. Through Lancor's Advisory practice, Scott and his team assist private equity funds with originating and appraising potential transactions, sourcing industry experts for pre-acquisition due diligence, and finding backable senior management teams. Scott has worked within the banking and private equity ecosystem as a banker and by serving C-suite and board level multinational clients within the private equity and family office sectors.