BSG From the Boardroom

This article was originally published on LinkedIn.

Here are some of the themes that resonated....

• High Purchase Price Multiples Suggest Concerns
  Historically high acquisition prices being paid for companies are putting pressure on multiple expansion. Despite some softening in the energy sector, there was little consensus that high EBITA multiple prices are likely to decrease over the short term. Models were presented that showed how conditions were eerily similar to 2007 the last market peak. Some firms were looking at deals outside the US for value buys and also considering “counter-cyclical” companies.

• Pressure on Value Creation is Unprecedented
  Given high exit prices, PE firms are taking a laser-like focus to value creation within their portfolios. One strategy is to grow their portfolio companies through add-on acquisitions that lead to greater synergies and revenue growth. Another option suggested considering smaller companies below $100 million in revenue where there was more opportunity to grow EBITA than in larger entities.

• Talent Matters…
  Diligence is extremely critical in vetting talent- best practices included detailed and comprehensive background checks in addition to multiple meetings with the management team before close. Red flags include a pattern of lawsuits and any “material non-disclosure”. Other best practices included in-depth reviewing all Tier One managers as well as their subordinates. Some PE firms court management teams over a long time horizon enabling them to build trust and credibility. The position must likely to be replaced upon acquisition? The CFO. PE Firms that contributed to panels looked to collaborative cultures as a predictor for success. Most reported that highly entrepreneurial owners could be the most challenging to manage.

• Operating Excellence is Key to Success
  PE firms presenting at the conference had robust 100 Day Plans. Some  some had done considerable spadework before a close, demonstrating to management teams how they could scale their businesses through marketing and distribution strategies that had been successful with previous portfolio companies.

• Complexity continues
  Institutions ranging from political structures to corporations are struggling to address globalization, technological innovation and the increasingly interconnected world we do business in. There are no easy answers but it is important to recognize these trends as informing the overall context that we live and work in.