INCREASING THE VALUE

of portfolio companies by improving their

operational performance
Survey results

STR-97008-474-03-01-E_Presse.pptx
The study objective was to evaluate the importance
of operational performance improvement for PEs

Objectives and background

• The study was initiated to evaluate the importance of operational

performance improvement for PE companies and understand how they act
during
g times of financial crisis – initial hypotheses
yp have been defined

• The survey of PE companies was conducted between September and

November 2008

• Approx. 250 executives1) of PE companies in Europe and USA were

contacted – 56 responses from 9 countries received (22% return rate)

• Roland Berger supports PE companies in increasing the value of their

portfolio companies – More than 300 projects related to private equity
transactions conducted since 2002 for many clients
1) Mainly Partners, Principals and Directors
STR-97008-474-03-01-E_Presse.pptx 2
BACKUP

Most of the hypotheses formulated at the beginning

of the study were substantiated

Initial hypotheses

• Attractive acquisitions and good exits are more difficult

• PE companies place greater emphasis on performance

improvement to increase value

• The average holding period of portfolio investments has increased

• PE companies work more professionally these days and give their

portfolio companies a comprehensive 100-day plan

• PE companies use specialized teams or seek professional

_
support to bring about operational performance improvements

STR-97008-474-03-01-E_Presse.pptx 3
BACKUP

Strong contribution from UK and Germany – Main

investment focus on mid cap

Questionnaires answered from [%] Investment focus (market cap.) [%]

55
France 4%

Germany 17%
Netherlands 2% 22 23
Poland 8%

Russia 4% 0
Sweden 2% Venture Small cap Mid cap Large cap
cap (USD (USD (>USD
Switzerland 10% (<USD 50 m to USD 200 m to 1 bn)
UK 50% 50 m) 200 m) USD
1,000 m)
USA 2%

STR-97008-474-03-01-E_Presse.pptx 4
BACKUP

Broad investment focus in terms of industries

covered

Investment focus in terms of industries1)

Automotive 9 Mechanical & Plant Engineering 20
Aviation 9 Media & Entertainment 23
Chemicals 18 Medical Devices 21
Construction 10 Microelectronics 8
Construction Materials 16 Oil Industry 9
Consumer Goods & Retail 20 Pharmaceuticals 10
Defense & Aerospace 10 Power & Gas 9
Electrical Engineering 17 Public Sector 4
Environmental Technology 15 Rail 9
Financial Services 14 Steel & Metals 9
Healthcare 25 Telecommunications 16
IT Industry 14 Travel & Tourism 10
Logistics 18 Opportunistic 16
Machinery 18 Other 8
1) Multiple responses possible

STR-97008-474-03-01-E_Presse.pptx 5
Performance improvement growing more important
and PE companies becoming more professional

10 key findings on operational performance improvement (1/2)

Improving operational performance is becoming more important as

1. attractive acquisitions and good exits are more difficult

The average holding period of an investment is expected to increase

2. from 4 to 5 years, giving more time for performance improvement

PE companies are working more professionally today, giving nearly all of

3. their investments a 100-day plan (compared to only ~50% 5 years ago)

High-impact representation is preferred to ensure the success of an

4. investment (board representation, program mgmt., mgmt. buy-in)

There is nearly always a single team assigned for the entire investment
5. lifecycle, which is also responsible for performance improvement
STR-97008-474-03-01-E_Presse.pptx 6
Operational performance improvement levers are
introduced and used in specific order

10 key findings on operational performance improvement (2/2)

Performance initiatives are typically addressed at the beginning of the

6. investment – Levers introduced in several waves

Levers are implemented in order of cost, structure and top line – Cost
7. and top line always addressed, structural levers applied selectively only

PE companies are using levers more often, typically starting their

8. implementation earlier

Companies prefer to use strict targeting & controlling with all performance
9. improvement levers, but no clear overall strategy of lever use is evident

External consultants are hired selectively for specific investments – Their

10. use depends on the individual person concerned at the PE company
STR-97008-474-03-01-E_Presse.pptx 7
There are significant changes in the different stages
of the investment cycle as a result

Changes in the stages of the investment cycle

ACQUISITION HOLDING PERIOD EXIT

• Investing in an • Increased avg.

avg • Achieving a good
attractive target holding period exit to realize the
is more difficult highest value is
• Optimization of more difficult
• Much higher investment is
refinancing cost more
professional

• Stronger focus
on improving the
investment with
specific levers

STR-97008-474-03-01-E_Presse.pptx 8
Investing today is more difficult, refinancing costs
have increased dramatically

A.1 Finding and investing More difficult About the Easier

in an attractive same
investment target is 18 months ago
... today compared to
3 years ago
…

A.2 Your ratio of "funds Decreased Remained Increased

raised" to "invest- the same
ments completed" 18 months ago
has ... compared to
… 3 years ago

A.3 The refinancing costs Decreased Remained Increased

of your portfolio have the same
... compared to … 18 months ago
3 years ago

STR-97008-474-03-01-E_Presse.pptx 9
Average holding period of portfolio set to rise to 5
years – Good exit from investment is more difficult

A.4 What is the average

intended holding Today 5
period of your
portfolio? [years] 3 years ago 4

5 years ago 4

A.5 Selecting the right More difficult About the

moment and means same
of exit to realize the 18 months ago
highest value of the
3 years ago
investment is ...
today compared to 5 years ago
…

STR-97008-474-03-01-E_Presse.pptx 10
Increasing the value and performance of investments
in holding period is comparatively more important

B.1 How did the impor- Decrease Increase

tance of increasing
the value of your Acquisition/
0.3
portfolio companies multiple
develop within the
diff
different iinvestment Holding period/
1.3
stages over the last performance
three years?
Holding period/
0.8
growth

Exit/multiple -0.3

STR-97008-474-03-01-E_Presse.pptx 11
PE companies work more professionally today,
giving nearly all investments a 100-day plan

B.2 Looking at your portfolio, what proportion of companies are

given a 100-day plan? [%]

86
77 p
• PE companies
with a large-
62 cap focus are
the most
44 professional –
97% have a
100-day plan
vs. 85% mid-
cap and 74%
small-cap
5 years ago 3 years ago 18 months ago Today

STR-97008-474-03-01-E_Presse.pptx 12
High-impact representation is preferred to ensure
the success of an investment

B.3 How important is the Somewhat Extremely

relationship between Passive (minority) important important
the investor and the position
portfolio company for
Booking position
the success of the
i
investment? ? Target-setting
approach
Active/executive
coaching
Board representation
Active with internal
program mgmt.
Management buy-in
Representative in
executive function

STR-97008-474-03-01-E_Presse.pptx 13
Performance initiative levers typically addressed at
beginning of investment in several waves
B.4 At what point in the Beginning
life of the investment Wave 1 Wave 2 Wave 3
do you typically
address the following Sales-up
performance Portfolio optimization
initiatives?
R&D optimization
ti i ti
Procurement
optimization
SG&A optimization
Footprint optimization
SCM optimization
Overhead structure
& cost optimization
Working capital
optimization

STR-97008-474-03-01-E_Presse.pptx 14
To improve performance, operational levers are
always applied, structural levers used selectively

B.5 During the holding Selective Always

period, which levers
Sales-up
do you apply to
improve the Portfolio optimization
operational
R&D optimization
performance
f off your
investment? Procurement
optimization
SG&A optimization
Footprint optimization
SCM optimization
Overhead structure
& cost optimization
Working capital
optimization

STR-97008-474-03-01-E_Presse.pptx 15
Targeting & controlling are frequently used, whereas
external consultants are hired selectively (1/2)

B.6 How and how often do you usually implement performance improvement levers for your
investments? (Multiple responses possible, scale from 1-9, where 1 = never, 5 = sometimes and
9 = always)
Strict target- Support from New execu- Interim External
ing & financial tives/mgmt. management consultants
controllingg sponsor
p buy-in
y

7.2 6.1 5.4 3.6 4.9

Sales-up

6.3 6.3 5.3

Product portfolio 3.7 4.5
optimization

R&D optimization, 5.7 5.4 5.2 4.7

3.7
innovation, acceleration

6.7 6.2 5.4 5.3

Procurement 4.2
optimization

1) Average value: only users included

STR-97008-474-03-01-E_Presse.pptx 16
Targeting & controlling are frequently used, whereas
external consultants are hired selectively (2/2)

Strict target- Support from New execu- Interim External

B.6 ing & financial tives/mgmt. management consultants
controlling sponsor buy-in

7.0 6.4 5.1

4.9 3.9
SG&A optimization

6.1 6.1 5.6 5.4

Manufacturing/footprint 4.0
optimization

6.3 5.8 5.0 5.1

SCM/logistics 3.9
optimization
7.0 6.4
Overhead structure & 4.8 3.6 4.9
cost optimization

7.3 6.1 5.6

Working capital 5.5
3.6
optimization

1) Average value: only users included

STR-97008-474-03-01-E_Presse.pptx 17
PE companies mainly assign a single team for the
entire investment lifecycle

C.1 Within your PE company, what approach to team staffing do you typically apply?

"One team for the entire "Specialized teams for

investment life cycle" acquisition, holding period
and exit for each
investment"
investment

No No rule No rule
0%
13%
5%
Yes
13%

75%
95% No
Yes

STR-97008-474-03-01-E_Presse.pptx 18