First Event of IVCA Toolkit Series

First Event of IVCA Toolkit Series

March 11, 2008

CHICAGO - “ During the inaugural IVCA Toolkit Series on - œStrategic 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.

- œActivism pays off,-  Buchanan said. - œThe 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 - œreacting 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.

Buchanan's presentation included a case study for a company that learned in dilegence that the key driver of profitability was Relative Market Share (RMS) v. absolute market share.  For this company,  acquiring the 3rd or 4th player in market could yield dramatically better returns than trying to increase national market share.   This finding was not immediately obvious to the management team but after reviewing all of the data uncovered during due diligence and using that data to develop plans for Year 1, the company's management was able to execute against the plan.
Sam Rovit shared his experiences of turning around $10 billion meat processor Swift & Company (now JBS Swift & Company), which is a portfolio company of HM Capital Partners. Rovit, who had worked with Bain from 1988 through 2005, led Swift from 2005 through 2007 before returning to the firm in 2007.

Rovit spoke about his experience changing a corporate culture that ultimately led to a two times payback for his investors. He added: - œBeing 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 - œget under the IT hood-  early.
  4. That it is essential to develop a program management office.
  5. Corporate culture is everything. - œDysfunctional 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 - œtools-  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 - œdiligence imperatives-  and - œfull potential must have facts- .