Justin Miller, a partner at Bain & Company, says his firm stays focused by sitting down at the start with managers of portfolio companies and hammering out a list of the three to five key goals to achieve over the ensuing few years.
And at KKR Capstone, the process of remaking the portfolio company begins with a 100-day plan that includes a very clear idea of the target’s profit potential, says director Todd Cooper. “On day one I had a target, I had a number in my head,” he says of one acquisition. Often, value is created by zeroing in on the potential improvements unique to each portfolio firm, but also by finding similar needs in two or more firms in the portfolio. Office supplies, for example, can be purchased more cheaply in bulk.
The process, adds Hooper, generally begins with a deceptively simple question: “Do we understand what this company does and how it makes money? It sounds like a very basic question, but it’s a very important one.” Centerview evaluates the firm’s position in the market and the talents of its management, and asks what has to be done to take the firm to the next level.
One of Centerview’s acquisitions was a frozen pizza maker that was doing well. But Centerview believed annual sales could be boosted from $200 million to $500 million.
“We could bring resources to the company that they could not get by themselves, including things like superior sales talent,” he said. Because of its size, Centerview could get sales meetings with large retailers that would not sit down with the pizza firm itself. Centerview also boosted its access to retailers by placing former executives from big-name firms such as Kraft, Gillette and Nabisco on the pizza firm’s board.
“For the [pizza firm’s] CEO to be able to pick up the phone and talk to these guys is very important, and something he might not be able to do under the previous management,” Hooper said. Centerview also brought in additional executives and directors with industry expertise. “We’re one year in – maybe, to use a baseball analogy, in the second inning. But it feels good.”
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