PE Value- Creation Stories Ten Essential Case Studies Detailing How PE Improves Portfolio Companies

May 2015

Sponsored by EDITOR'S LETTER

Ten Unique Stories

ver the years, I’ve told writers new to the private equity beat that they should think of it not as a O Wall Street niche but as a lens through which to view trends in just about every form of commercial endeavor on the planet. David Snow Private equity and venture capital firms invest in every CEO & Co-founder industry sector, in companies at every stage of develop- Privcap Media ment, and in most geographies of the world. Covering private equity as a topic means viewing a kaleidoscope of opportunities and hearing hundreds of different stories.

May 2015 Despite the many different companies and investment situations, a recurring theme—especially when told by a GP—is the important role played by the private equity firm itself in shaping an outcome. Competition for investment dollars, as well as an expected compression of returns, means that private equity PE Value- Creation investors must demonstrate an ability to change fortunes Stories Ten Essential Case Studies Detailing How PE Improves within their portfolio companies by dint of operational Portfolio Companies Sponsored by wherewithal or some other combination of resources being provided to management.

Learn more about In this briefing, you will read the stories of 10 private PE value creation at equity investments, told by the deal partners themselves. www.privcap.com Note that luck is not emphasized in these stories. The GPs go out of their way to emphasize a smart thesis, a smart approach to sourcing, and/or a smart operational- improvement plan that led to investment success. Most of these stories also have affiliated video inter- views that you can access—just click the icon that you’ll see at the top of the page. We hope you learn something of value about the private equity firms featured herein, and appreciate the varying ways the GPs have of identifying and unlocking value in a challenging market.

All the best,

David Snow @SnowNotes

Privcap Media Seeing Value in Infection Prevention David Snow 04 Baird Capital found what it was looking for when Co-founder and CEO it acquired medical products company Zurex, says Gill Torren the firm’s Mike Liang. Co-founder and President Marketing & Sales Bain Capital Keeps Warm 05 with Canada Goose Matthew Malone The firm’s Steve agliucaP discusses its timely invest- Senior VP, Marketing & Digital Strategy ment in the outerwear maker. Jacqueline Ostrov Marketing Manager How GTCR’s Leadership Neil Golub 06 Strategy Build Devicor Director of Business Development The firm’s Dean Mihas tells the story of a carve- Doug Weber out and exit of Devicor, and how its Leaders Sponsored Content Strategy helped the transaction. Content 08 Spurring Growth in an Mike Straka Out-of-Favor Industry Editorial Director Corinthian Capital exited CD and DVD maker AVL Andrea Heisinger Digital Group and found success in an industry Associate Editor Zoe Hughes some have left for dead. The firm’s Kenneth Clay Editor, PrivcapRE discusses the deal. Design & Production 09 Recognizing Value in Alibaba General Atlantic’s Anton Levy talks about its Gerson Lopez investment in Chinas Alibaba Group, which was Production & Design Coordinator one of the most successful in the firm’s history. Nathan Pardee Video Production Manager Jessica Holterhoff 11 Portland PE Scores ‘Triple Play’ Media & Marketing Coordinator in Caribbean Telecom In 2005, the firm bought struggling Columbus Contacts Communications for $80M. Michael Lee-Chin says 10 years later it was sold for $3B. Editorial David Snow / [email protected] How BC Partners Grew Migros Mike Straka / [email protected] 12 Zoe Hughes / [email protected] BC Partners took Turkey's successful food retailer and Andrea Heisinger / [email protected] made it even better, says the firm's Nikos Stathopoulos. Sponsorships & Sales Gill Torren / [email protected] 13 Z Capital Revs Up MSDP Acquisition Neil Golub /[email protected] Jim Zenni talks about building out the automotive Doug Weber /[email protected] performance parts maker for a specific market. For subscriptions, please call 855-PRIVCAP or email [email protected] 14 Sun Capital's Colorful Success David Mezzanotte tells Privcap about the keys to the About Privcap Media firm’s success with Emerald Performance Materials. Privcap is a digital media company that produces events 16 Value Creation Strategy and thought-leadership content for the global private Private equity firms are getting creative when it capital markets. Privcap Media offers communications comes to creating value, says EY’s Michael Rogers. services to market participants. | www.privcap.com

where providers weren’t getting paid for people who had been diagnosed with hospital-acquired infections and had to treat them out of their own pockets. So it’s going to be a big concern, and we started looking at the numbers. One out of every 20 patients gets some type of hospital-acquired infection. The estimates are some- where around $30B at a time when everyone’s trying to figure out how to save costs. It seems like a natural, interesting area for investment. As we started looking into this area, we made an investment in an interesting medical-products company called Zurex Pharma, Inc., based in Middleton, Wisc. We had tracked this company for a couple of years. The reason we liked Zurex was that it was an interesting platform of anti-microbial solutions that could be used in different applications. One of their lead programs is skin prep for surgical-site infections—[there’s a] very large market there, and it’s used for every type of operating proce- Seeing Value in dure. And they also had an interesting solution, with good clinical data already, as a catheter-lock solution. So Infection Prevention any time someone has a catheter and people need to put solutions in and out at the end of it, you have to try Baird Capital was looking for an investment to clean it to keep the catheter open in a company related to preventing hospital- but also keep it from being infected. Today what people use is either nor- acquired infections. They found it in Zurex, mal saline, or sometimes they use says the firm’s Mike Liang. heparin, which is good as an anti- coagulant but does nothing from the anti-infective perspective. What we saw is an interesting Privcap: One company in which Baird company with a great platform of has invested has products aimed at products that we could develop, in preventing hospital-acquired infections. an area that we were already very Why was that an area of interest to you? interested in. And so far so good: That company is doing quite well. That’s an Mike Liang, Baird Capital: [We] thought interesting example of what we’d love it was an interesting area in terms of to be doing more of. ■

pany that occupied a niche, and in our research on consumer preferences, the big words that came out were ‘warmth’ and ‘quality,'” Pagliuca says. “We felt there was a large functional segment that would need that warmth and quality, and we really hit it off with [Canada Goose] CEO Dani Reiss, who is Bain Capital really driving the whole strategy.” Whether by accident or design, that strategy now includes celebrities, Keeps athletes, and supermodels who have flocked to the patented goose-down- filled parkas by the gaggles, helping Warm what started out from a premise of making “the warmest coat on the With planet” into the most sought-after winter coat of the 21st century. “We bought in before the first polar vor- Canada tex, and now we have ‘snowmageddons,’ so I don't think we could have two better years to own the company,” says Pagliuca. Goose Indeed, since 2005, annual sales have increased from just $5M a year to some $200M and climbing, as the parkas that The firm’s Steve cost $800 and up continue to sell out Pagliuca says the in store after store, perhaps surpassing Bain’s wildest dreams for the company. outerwear maker fit “We’re trying to figure out how to into a niche, and it’s get more populated,” Pagliuca says. getting ready to take “Jackets are flying off the shelves, so we are figuring out how to get the the brand global right distribution agreements and in the right stores, globally.” ■

Fact Box ▸ Canada Goose he timing of Bain Capital’s 2013. started as Metro investment in outerwear com- February 2015 has gone in the Sportswear in 1950 pany Canada Goose couldn’t record books as that month’s third- T ▸ In 2004, Canada have been better than before the polar coldest in New York City history, but Goose jackets were fea- vortex in the winter of 2015. it may actually be better known as the tured in the movie “The “I was in New York City [a few month Canada Goose invaded the Big Day After Tomorrow” weeks ago], and the jackets were eve- Apple. The company’s coats were seen rywhere,” says Steve Pagliuca, man- everywhere, made conspicuous by ▸ Bain invested in aging partner at Bain Capital, which their red, white, and blue logo placed Canada Goose in made an undisclosed majority invest- on the upper left sleeve. December 2013 ment in the company in December “Canada Goose was a small com-

How GTCR’s Leadership Strategy Built Devicor

GTCR's Dean Mihas talks about a carve-out and subsequent exit of portfolio company Devicor, and how the firm’s "Leaders Strategy" helped in the transaction

Privcap: You recently exited a platform company that GTCR built up called Devicor Medical Products. Could you give us a brief overview of what Devicor is?

Dean Mihas, GTCR: Devicor is a medical- products company based in Cincinnati, and they sell a bunch of products, mostly in and around the breast care space. Their main product is a system that performs a breast biopsy [the Mammotome Breast Biopsy System]. So the situation is a woman has a mammogram, and there’s some abnormality that the physician wants to extract and test for cancer. We have a system where the woman would go in for an outpatient procedure and get that lesion removed via biopsy. The company sells directly into 10 countries and distributes into another 40 countries.

Your firm is known for taking a management-first approach. You find the talent, and then you find the companies.

Mihas: We call it the “Leaders Strat- egy” at GTCR. It’s been the same strategy the firm has pursued since it was founded in 1980. Very simply, our investment process all starts with identifying a high-quality management

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executive who we want to work with, us had we not had the management Fact Box ▸ In 2010, Devicor in combination with developing team we had in place. a thesis in a particular area of the Mammotome was a business that completed industries we cover. Devicor would didn’t really fit inside of J&J. So we had initial platform be a great example of this Leaders a vision that we could pull this product acquisition with Strategy, but inside of healthcare we set out, the biopsy system and a couple Mammotome had developed a thesis in and around other related products that they sold carve-out from one area of the med-tech market, with the system, and create a stan- Johson & Johnson which in this case is the interventional- dalone company out of it. [We could] radiology department of the hospi- put more time, attention, and focus on ▸ The standalone tal where a number of outpatient this business, renew the product offer- medical-devices procedures are done, including these ing through a very targeted R&D effort, business biopsies. and as a result get the top line grow- completed Then we went out and met a num- ing again. It had stagnated a bit under several comple- ber of executives who have led compa- J&J, and [we wanted to] make it into a mentary tuck-in nies in and around the interventional- much more strategic asset. product space. And as part of that, The carve-out process from J&J acquisitions we met Tom Dalton, who became the required us to set up an entire back- CEO of Devicor. We formed a formal office infrastructure. We had to move Mammotome partnership with him in advance of our manufacturing out of the J&J components having any company or assets. We did facility, which was down in Juarez, and tools that with Devicor, but in well over half Mexico, and set up our own facilities the companies that we end up invest- within 18 months after closing the ing in, we have a management partner transaction. And then we had to get that we’ve identified and a thesis regulatory approval in each of the we’re working with, and we are out countries that we distributed in or looking for companies to buy. sold the product to directly, and that Devicor was strategically sold took anywhere from a year to three to another company. So you’ve years, in some cases, to get all those completed the round-trip of that regulatory approvals. So there was a private equity investment. lot of complexity, but eventually we got the product out—and, after three What were the drivers of success years of effort, created a totally stan- in the deal? dalone company. In addition to that, we completed Mihas: It started with the founda- four small acquisitions of products tion of having a thesis and having a that were related to the products we management team. We proactively were selling, and two licensing deals approached a number of companies; for related products. All those things one of those was Johnson & John- in total effectively created a very son [J&J]. They had this product line different business than the one we that we were familiar with, and it fit started with, and created a standalone our thesis. We were able to negoti- company that became an attractive ate a deal with J&J that took about 12 strategic asset for a number of larger months from beginning to end, to buy med-tech companies. Ultimately, that set of products. And it’s fair to say Danaher [Corporation]’s business, that J&J would not have sold that to Leica Biosystems, acquired Devicor. ■

Corinthian Capital Click to watch this video at privcap.com

Spurring Growth in an Out-of-Favor Industry

Corinthian Capital Group invested in CD and DVD maker AVL Digital Group, focusing on its core and legacy products. The firm’s Kenneth Clay talks about the deal.

Privcap: Let’s talk about a recent exit the large record labels. And everyone Did AVL do any add-on acquisitions that your firm did in the form of AVL thought that the CD was disappear- while you owned it? Digital Group. What was the original ing. We resonated well with the owner thesis for that investment? and the management team. They cared Clay: Yes, they made an acquisition about the price, of course, but also about of a company called CD Baby, which Kenneth Clay, Corinthian Capital: It was the business and the people, and we was highly complementary. It was and an entrepreneurial business, run by the were able to structure a deal at our price is one of the leading distributors of son of the founder. The business had for a company that was very much out music electronically or over the Web been around for 60 to 65 years, and it of favor. They went from shellac records for independent artists. And, in fact, a was primarily making CDs and DVDs to vinyl, to tape, to CD, to DVD, and ulti- significant percentage of the content for independent artists. [It was] kind mately digital distribution. And so we on iTunes—I think it’s about 25 per- of an out-of-favor industry when we concluded that the investment in the cent of the tracks by volume—come made the investment, and there was core and/or legacy products would have through CD Baby. So it was a terrific a large bankruptcy of a company that a long life, and they did. We continued marriage of both the analog side and was basically selling machine time to to build that business. the digital side. ■

Following the largest IPO in history, Alibaba Group PE backer General Atlantic is reportedly seeing a roughly 18x increase in the value of its $75M investment in 2009. GA’s Anton Levy speaks with Privcap about the deal—one of the most successful in the firm’s history.

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Privcap: How did General Atlantic come to and we were looking for a long-term opportunity invest in Alibaba Group? in Chinese e-commerce. We did not sell in the IPO, and our view is that the business is going to Anton Levy, General Atlantic: Back in early 2008, be multiples the size of its current state over the Jack and Joe were looking to see if they could help coming years. We think that the growth’s going monetize some of the Yahoo! position that ulti- to come across a whole bunch of different lines of mately consummated itself later, in 2011. We met business. We think they’re relatively early in the them through that process and began to develop monetization of their user base. They’re already 80 a relationship. Every couple of years, they bring percent of all mobile e-commerce in China, and Fact Box the top 15 to 20 business leaders across their entire when we made our investment, they had 70 per- organization to the U.S. They asked if we would cent of the Chinese e-commerce market. Alibaba be willing to sit down with them and talk about is now over 100 percent of the entire profitability ▸ General Atlantic what we’ve done to build a successful investment of the Chinese e-commerce sector. invested a reported organization. The next day, they reached out to $75M in Alibaba me and said, “We think you have an interesting How did General Atlantic add value to Alibaba? Group in 2008 culture, approach to business, to partnerships, and to how you work with entrepreneurs.” And they Levy: They’re an incredible team, and there was ▶ Alibaba’s 2014 said they would love to find a way for us to become a lot of two-way dialogue. And there was a lot of transactions shareholders of Alibaba Group. discussion around really high-level strategy, about totaled $248B— what they were doing on the M&A strategy side, more than eBay What did you like about Alibaba’s business in and a little bit of how they were looking to build 2009, when you made the investment? and Amazon the team in different regions. When they were combined looking outside of China, we had a number of con- Levy: The truth is, liquidity is really hard to get in versations around India, around the U.S. So most the marketplace. The size and scale of the liquid- of the discussions have been relatively strategic in ▶ Alibaba’s ity they had is what brought us in. They’ve been nature. There was a handful of tactical back-and- 2014 IPO raised able to monetize it for years, but the opportunity forth [conversation about] different businesses $25B—the to generate the liquidity, plus their team, is what they were going to get in, different acquisitions largest in history initially got us incredibly excited. We had also they were going to make, investments they were spent a lot of time looking at Chinese e-commerce, going to make—things at that level. ■

Portland PE Scores ‘Triple Play’ in Caribbean Telecom

In 2005, Portland Private Equity bought struggling Columbus Communications for $80M. Ten years later, it sold the company for $3B.

Privcap: Where did you see the value in 20,000 kilometers of undersea fiber. Columbus Communications? On becoming operationalized, it went bankrupt. At the time, we didn’t have Michael Lee-Chin, the smartphone, Google, etc., so there Portland Private Equity: When you’re was just not enough broadband traffic. in developing countries and you have So we bought Columbus Commu- the perspective of being an investor nications out of receivership for $80M. in a developed country, it’s like you’ve We spent $20M reorganizing it, and seen that movie before. So we saw today that business will give us cash the cable movie before, played out flow as measured by EBITDA of about Fact Box ▸ In 2005, Portland in Canada, and we therefore saw the $150M. That’s our wholesale business. Private Equity bought ingredients for a replay of that. See- Then we have our retail business, Columbus out of ing the conditions prevalent in the selling the “triple play” in Trinidad, bankruptcy for $80M region, we could see exactly how the the eastern Caribbean, Jamaica, etc., movie was going to play out. We just and today that business is giving pressed the start button. us another $150M in EBITDA. So we ▸ Columbus Interna- We made our first foray [into the founded Columbus in 2005 with zero tional operates in 42 telecom sector] by owning Cable cash flow, but there was just huge countries in the Carib- Bahamas. And we got into the under- demand, and the competing entity bean and Latin America sea business by default, because the then was an incumbent monopoly, incumbent telco at the time was charg- which was inefficient. That ineffi- ▸ In March 2015, ing too much. So having gotten into ciency is what gave us an opportunity. Cable & Wireless it, we saw there was an opportunity in That business is now giving us cash bought Columbus from 2005 to have bought the Arcos Net- flow of over $300M. And [London- PPE for $3B work, for which in the late 1990s, early based] Cable & Wireless Communica- 2000s, Motorola spent $450M laying tions just bought us out for $3B. ■

How BC Partners took Turkey's BC Partners successful food retailer and made it even better, says the Grew Migros firm's Nikos Stathopoulos

AS AN EMERGING MARKET WITH VERY there is still a lot of room for organized attractive demographics and little food retail to grow. penetration by private equity, Turkey Migros was founded 60 years ago presents an interesting opportunity for and currently has close to 1,200 stores investors in the asset class. Beginning across Turkey, accounting for 15 percent in 2006, BC Partners had the country of the country’s organized food retail on its investment radar. By 2008, the business. BC Partners took the company firm completed Turkey’s largest private private in 2008, relisted it on the Istan- equity deal ever. bul Stock Exchange in 2011, and sold BC Partners, a Pan-European invest- half the firm’s stake to Anadolu Endus- ment firm, acquired an 80.5 percent tri earlier this year for $2.7B. stake in Migros, Turkey’s largest super- “We were able to double the number market chain, for $3.3B. As BC Partners of stores [from] when we bought the managing partner Nikos Stathopoulos business in the last six years,” Statho- puts it, the investment thesis was “rela- poulos says. “That resulted in almost tively simple.” doubling the sales.” “We were buying the market leader Having taken the company private, in the food retail sector, [which] tends to executed an initial public offering, and be a defensive sector,” he explains. “[The sold half of its investment, BC Partners business] had substantial growth oppor- has set the stage to for a complete exit tunities driven by the fact that it operates in the near future. Stathopoulos pre- in a market with 80 million [people] in a dicts the firm will get out of its invest- population where the demographics are ment in Migros entirely in the next extremely attractive.” couple of years. Stathopoulos, a managing partner To be sure, he remains cognizant at the firm, notes that 50 percent of that there could be pitfalls. He cites the Turkey’s population is below 30 years potential depreciation of local currency, old and that its gross domestic product which BC Partners has experienced is growing at a substantial rate, outpac- during its ownership of Migros, as well ing any other European market on BC’s as possible geopolitical risks that typi- radar. (The firm includes Turkey as part cally loom over any emerging market. of its Pan-European focus.) Further- None of these points are enough more, Stathopoulos says the dynamics of to sway his upbeat opinion on Turkey. organized retail in Turkey are in the very Stathopoulos continues to be bull- early stages of development. Compared ish on Turkey as an emerging market with the rest of Western Europe, where to put private equity to work. He still the organized food retail subsector very much likes the demographics and represents between 80 percent and 90 growth potential of the country. percent of the entire sector, in Turkey it “The main fundamentals of the country represents only 40 percent. This means remain strong,” Stathopoulos says. ■

Most of the parts and products MSDP sells Fact Box are used to enhance or improve acceleration, fuel injection, or ignition. Zenni says the hot-rod enthusiast market is growing both demographi- cally and geographically. Z Capital acquired the MSDP platform from a lender that owned the company. The private equity firm acquired all of the lender’s interest, both debt Z Capital and equity, in MSDP to acquire the company. “We identified the company as having pretty ▸ Z Capital significant potential in its sector,” Zenni says. doubled the Revs Up “More importantly, it was owned by a lender at value of MSDP the time, and it had an interim management team, which is never optimal.” ▸ The firm relied The firm took over the company and quickly upon operating installed a permanent management team that partners to MSDP has grown the business and increased margins. integrate MSDP “It was not so much a turnaround as it was an and ACCEL optimization,” says Zenni. As Z Capital management started looking at Acquisition ▸ Zenni refers the MSDP marketplace, the firm quickly identi- to the MSDP fied potential add-on acquisitions to support the buildup as an business’s organic growth. One of those bolt-on The firm's Jim Zenni discusses companies was ACCEL, which made similar “optimization” building out the maker of products to those of MSDP. In addition to cost synergies, Z Capital recognized the complemen- automotive-performance tary sales channels: MSDP’s products are typi- parts for a specific market cally offered through distributors’ catalogs and online; ACCEL’s goods can be found in retail- oriented settings. Z Capital relied upon operating partners to help with integrating the two companies. Without this effort and no matter how complementary both businesses were, the strategy of bringing them together would have fallen apart. IM ZENNI, president and chief executive “Our initial plan is to execute on strategy,” he officer of Z Capital Partners, is putting the says. “You have got to execute on it for [the con- pedal to the metal as he builds out automo- joining of MSDP and Excel] to be successful.” tive-performance parts manufacturer MSDP While Z Capital’s fund structure allowed for for the hot-rod crowd. Zenni’s firm bought the the firm to initiate capital calls to execute add-on portfolio company in late 2013 and followed that deals beyond the investing period, MSDP’s perfor- up with an add-on acquisition of ACCEL Perfor- mance has been so strong that it allowed the firm mance Group shortly thereafter. to pay down enough debt through free cash flow “If you own a 1975 Chevy Chevelle and you are that the firm did not need to approach investors. looking for the latest, greatest fuel-injection system “From a limited-partner standpoint, it is A performance auto part made to put on your car, we have that market,” explains great,” Zenni explains. “We did not draw any by MSDP Zenni. “You have a lot of baby boomers that are more capital, and we probably doubled the value buying cars they know and love from their past.” of the business at the end of the day.” ■

SUN CAPITAL IS MOSTLY KNOWN AS A distressed and turnaround investor Sun Capital's in the private equity space, but it is a carve-out that has proven to be the David Mezzanote discusses firm’s most profitable investment to date. In 2014, Sun Capital exited its the keys to the firm's Colorful investment in specialty chemicals successful investment in maker Emerald Performance Materials Emerald Performance Materials after six years of ownership and more Success than tripling EBITDA. Emerald was a private equity dream story, becoming an outsized exit following a fairly regular-sized acquisition.

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“There is a lot of Emerald was the result of the The most significant of these bolt-on assemblage of five businesses from deals was for the specialty products fragmentation, and Lubrizol, which decided to let go of business from Dutch chemical com- non-core units. Sun Capital saw an pany DSM at the end of 2010. With I think there is a opportunity to create a stand-alone the newly acquired Rotterdam-based consolidation play business using these businesses as the facility combined with Emerald’s foundation for future success. Kalama, Washington–based factory, that could be made “They were fundamentally good both of which produced nearly identi- in several areas of businesses, just underinvested and, cal benzoic acid, Emerald suddenly we felt, undermanaged from the found itself with a global footprint. the specialty chemi- corporate parent,” says David In addition to the add-on deals Mezzanote, a managing director and organic growth in Emerald, Sun cals market—and from Sun Capital who was instru- Capital authorized $25M to be put to Emerald is just one mental in the Emerald deal. work in two capital projects, doubling Sun Capital was mostly attracted capacity for the Kalama location’s example of that.” to the businesses’ recession-resistant successful K-Flex product. The com- nature as a result of specialty chemi- pany began selling out of the specialty –David Mezzanote, Sun Capital cals’ diversity and applications in end chemical product shortly thereafter. uses. That strategy proved to be saga- “We always felt like Emerald had cious, as the firm acquired the business the potential to grow significantly, units in 2006, right before the Great and that’s when we began our growth Recession began the following year. investments, both in acquisitions and, Mezzanote says Sun Capital’s of course, investments in new prod- approach to uniting the former Lubri- ucts,” Mezzanote explains. “I think it zol groups into a single company was really is attributed to the hard work a textbook strategy from the firm’s that we put in with the company Fact Box ▸ Sun Capital playbook. One of the most important around restructuring and investing at more than steps was to restructure these vari- the appropriate time and in the appro- tripled EBITDA for Emerald ous divisions into four business units priate locations for growth.” from five. Another vital maneuver While Sun Capital is technically ▸ Emerald’s was to execute what the firm calls a sector-agnostic, Mezzanote acknowl- platform was “sku analysis.” This meant taking a edges that chemicals has been a sweet formed by deep dive into products the company spot for the firm. Not surprisingly, he carving out five offered. Unprofitable offerings were predicts the firm will continue to be units from exited, which freed up capacity on active in the sector. Lubrizol equipment for higher-value products. “I think there are certain sectors in Following the restructuring, which the chemical market where a roll-up ▸ Sun Capital bol- was mostly completed by the start strategy still makes sense,” he says. stered Emerald of the recession, Sun and Emerald “There is a lot of fragmentation, and through three embarked on a mission of growth that I think there is a consolidation play add-ons and $25M in capital included three strategic add-on acqui- that could be made in several areas of projects sitions as well as relying upon organic the specialty chemicals market—and expansion in all four business units. Emerald is just one example of that.” ■

Michael Rogers EY

By looking at operations, human resources, and product diversification, private equity firms are getting creative when it comes to value creation, says EY’s Michael Rogers

Privcap: Where can PE firms start you are wrong and you have to replace tion component to value creation in looking in order to create value? management after two or three years, the developed markets, contrasted you’re already halfway through your with a growth-vehicle model in the Michael Rogers, EY: The first strategic ownership cycle from a private equity emerging markets. move that private equity firms should perspective. So now we see a renewed make, after they develop their invest- focus on the human capital compo- Why is value creation such an important ment thesis, is to focus on manage- nent—taking folks that have a proven strategy for PE firms right now? ment. And what we’re seeing these track record and funding them and days is that management has become allowing them to build out platforms. Rogers: If you look at what’s happen- a critical component to the business. We see that as an emerging trend in ing in the marketplace today—valu- Oftentimes there are management the private equity industry. ations are exceedingly high, com- changes at the time of the ownership petition for assets is very high, the change, but it’s not just about chang- How can firms diversify their strategics are playing very aggressively ing the management. It’s finding the portfolio companies? and can outpay if they want to for right visionary who can take this busi- some of these assets—it makes it very, ness to the next level. Rogers: It’s not just geographical very difficult in auction situations to Right now, with the competi- diversification, but also product mix come away a winner by paying the tion and the high multiples being diversification. Many times the pri- highest price. So value creation is the paid in the market, unless you can vate equity funds had the opportunity absolute key to making these invest- have a management team that hits to bring in specialists and experts ments return what we think—and the ground running and develops its around product expansion and go what the investors ultimately will business model very quickly, you just into horizontal markets and add new require—they should to make this can’t afford to be wrong, because if products. There’s often a cost reduc- business very viable. ■

Real challenges Unreal rewards If you understand a market, it doesn’t matter much where it is. But if you don’t it seems distant and insurmountable. We’re here to help bridge that gap. Our highly integrated global private equity team can help you with your investments into new markets. Visit ey.com/peem