CHICAGO – During the inaugural IVCA Toolkit Series on “Strategic Due Diligence & Post-Investment Planning” on Feb. 28, Sam Rovit and Jed Buchanan of Bain & Company explained how activism and early and ongoing operational involvement pays off for private equity investors.

“Activism pays off,” Buchanan said. “The earlier the better. This requires a real investment from the management of the fund.” Buchanan, who has worked for Bain & Co. since 1999, compared the traditional approach 20 years ago of “reacting to problems” to what can happen with early and dedicated intervention.

He shared a statistic showing companies with investors that engage interventions in year one enjoy a 3.4 times deal-return multiple. This compares to a 1.7 times return for later engagements and the 1.3 times industry mean.

Rovit spoke about his experience changing a corporate culture that ultimately led to a two times payback for his investors. He added: “Being smart is irrelevant unless you can transfer those insights into the company. If your business isn’t growing, it is dying.”

Rovit’s advice included:

1. Why it is important to set the tone early in year one.
2. The importance of finding ways to take out 5 percent of costs on an annual basis.
3. Why CEOs need to “get under the IT hood” early.
4. That it is essential to develop a program management office.
5. Corporate culture is everything. “Dysfunctional teams do not get results.” Having the right director of human resources can be as important as the right CFO.
6. Ethics is black and white.
7. CEOs constantly need to be aware of cash flow. Investors need to be able to switch out poor-performing CEOs before it is too late.

Approximately 60 attendees participated in the first ITA Toolkit Series, which was held at the UBS Conference Center at One North Wacker Drive in Chicago. The IVCA is looking for ideas and recommendations for future programs.

The goal of the series is to provide immediately useful “tools” for venture capital and private equity professionals. The target for the event is the vice president level. The IVCA recommends suggested programs to include a concept as well as a case study that applies the concept and commentary. The program should conclude with a Q&A to wrap it up.

The IVCA also likes the idea of take-home tools someone would put on their bulletin board as a reference. For Bain, those were the “diligence imperatives” and “full potential must have facts”.