BRP Private Equity Brochure

accelerating Profitable Revenue Growth for Private Equity Firms

Blue Ridge Partners Management Consulting, LLC

Accelerating Profitable Revenue Growth for Private Equity Firms 1

Who We Are

At Blue Ridge Partners, we focus exclusively on helping companies accelerate profitable revenue growth. We have earned high marks from private equity firms by delivering material, rapid and cost-effective results for them and their portfolio companies. We selected this area of specialization because revenue growth is the #1 driver of value creation—58% of all value creation comes from revenue growth.

In accelerating growth, we consider strategic growth options such as entering new end markets, expanding geographically, and adding new products and services. We also help strengthen company execution by enhancing sales force effectiveness, optimizing channel performance, improving marketing programs, optimizing pricing, and strengthening sales and marketing leadership skills.

Most of our senior leaders come from large strategy consulting firms, but they have also led businesses. These combined experiences yield a natural focus on strategic issues in complex markets, with a highly pragmatic approach and a focus on implementation.

We are dedicated to serving the needs of private equity firms and their portfolio companies. Since 2002, our firm has worked with over 60 private equity firms and 300 of their portfolio companies in North America, Europe, Latin America, and Asia/Pacific.

Top-quartile performers, US S&P 500, 1990-2009 For a five-year holding period

Source: Eric Olsen, Frank Plaschke & Daniel Stelter, Threading the Needle: Value Creation in a Low-Growth Economy, 2010

Sources of Total Shareholder Return

58%

20%

15%

7%

revenuegrowth

Revenue Growth Cost Reduction/Margin Expansion

Multiple Expansion Free Cash Flow Improvement

Clients tell us we’re different from other consulting organizations in six primary ways:

1. Wefocus100%onprofitablerevenuegrowth,meaningwehavedeeperskillsandmoreeffectivetoolsthatallowustodelivergreaterimpactinshortertime.

2. Wehavedeepexperienceintheindustriesweserve,includingbothbusiness-to-business andbusiness-to-consumersectors.

3. Wehavewalkedintheshoesofourclientsduringourtimeleadingbusinessesand understandtheimportanceofpragmatism,focus,organizationalchange,andtheability to execute on our recommendations and implementation plans.

4. Wehaveacollaborativestyleandareeasytoworkwith—wedoprojectswithourclients not for them.

5. Werollupoursleeves—weareimplementationandresultsoriented.

6. Weprovideequalorsuperiorresultsforlowerfeesthanlargestrategyconsultingfirms thankstoourlowercoststructureandourexclusivefocusonthetopicofacceleratingprofitablerevenuegrowth.

Full Life Cycle Service Offerings

How We Are Different

2 Accelerating Profitable Revenue Growth for Private Equity Firms

Blue Ridge Partners assists private equity firms with growth issues throughout the life cycle of an investment. Our relationship might begin at any stage. We assist in completing commercial due diligence and preparing 100-day plans. During the holding period, we assist portfolio companies with four primary services as shown in the diamond schematic below. When the time comes to exit an investment, we help with our exit planning service offering called “T-1” (the target exit transaction date minus one year).

COMMERCIALEFFECTIVENESS

EXITPLANNING

("T-1")

COMMERCIALDUE DILIGENCE

PRODUCT PORTFOLIO

REVITALIZATION

PRICINGOPTIMIZATION

GROWTHSTRATEGY

100-DAYPLANS


Commercial Due Diligence: Our work addresses the routine needs in commercial due diligence ... • Market Assessment: market dynamics, size, growth rate, headwinds, tailwinds and competitors • Customer Calls: assessing the strength, stickiness and trajectory of key customer relationships

... but we also address three often overlooked but highly valuable topics • Assessing the Target’s Commercial Capabilities (Can the company capture the opportunity in

the market?) • Stress Testing Management’s Revenue Forecast • Defining the Greatest Growth Opportunities

100-DayPlans: We answer 12 key questions about the business that help establish the foundation for stronger revenue growth such as: Is the business generating enough new customers? Why does the company lose customers and to whom? Is pricing effective? Should the company focus on its core or extend outside the core? Based on these answers, we help identify the most impactful set of initiatives and outline the early actions required to capture these opportunities.

GrowthStrategy: For existing portfolio companies, we help define the plan for accelerating profitable revenue growth, including strategic actions and tactical improvements in execution. This plan might address opportunities inside the existing core or beyond the core and might address both organic growth and inorganic growth.

CommercialEffectiveness: We assess the performance of the company’s commercial organization—the sales, service, and marketing functions—and help effect improvements that increase the ability to reliably grow revenues and take market share year after year. Common improvement areas include the go-to-market model, sales processes, talent and motivation, demand and lead generation, commercial operations and management and culture.

Pricing Optimization: We diagnose the effectiveness of the company’s pricing and identify improvements that might be quick fixes, process and execution improvements and/or strategic pricing changes. These improvements often result in material improvements in margins and revenue growth. It is not uncommon to see margin improvements of 300 to 600 basis points.

Product Portfolio Revitalization: We identify reductions or expansions in the company’s product or service offerings. In some companies, the product line has expanded dramatically creating unproductive complexity in the organization. In other organizations, there might be gaps in the product line.

Exit Planning (“T-1”): For companies in their last year of ownership, we develop a fact-based growth story that defines the growth runway for the new buyer. This process defines the growth path, identifies near term EBITDA improvements, and provides insight into potential strategic buyers.

Our Service Offerings


Commercial Due Diligence

In most traditional due diligence efforts, only a subset of the strategic and commercial issues are adequately addressed while other important issues are overlooked. The result is that critical investment risks and upside opportunities are often missed and valuation decisions are made with suboptimal information.

OverarchingObjectivesofCommercialDueDiligenceSuccess of Tradtional Diligence EffortsinAchievingObjectives

Gain a clear understanding of the market, including size, growth, headwinds, tailwinds and competitors 4Develop a perspective on target company’s position in the market and its ability to grow with or faster than the market (or identify red flags and risk of market share losses) ?Determine the biggest growth opportunities and what has to happen – internally and externally – for those to be captured 8

Our approach to commercial due diligence is unique. We address the basic diligence issues in terms of market assessment and customer calls, but we are often asked to go further by assessing internal commercial capabilities, stress testing management’s revenue forecast, and identifying key growth opportunities for the business. Our due diligence approach may involve one or more of the topics depicted on the left-hand side of the chart below, and yield important insights for the deal team.

MARKET ASSESSMENTWhat market forces are at play that might create risk or opportunity for the target? What are the factors and trends that will affect demand for the target’s products/services?

CAPABILITIES AND COMMERCIAL PROCESSESHow prepared is the target to capture the opportunity in the market? Do they have the necessary capabilities and commercial processes? What other capabilities are critical to achieving growth targets?

GROWTH OPPORTUNITIESWhere are the big growth opportunities for the target? Are these related to existing products? Existing end markets? Existing geographies?

CUSTOMER RELATIONSHIPSHow is the target perceived by customers (product offering, value proposition, service quality, etc.), how sticky are these relationships,and what competitive threats/opportunities do customers see for the target?

COMMERCIAL DUE DILIGENCE INSIGHTS

1. Target company’s ability to meet management’s revenue forecast

2. Revised revenue forecast, based on insights

3. Specific growth opportunities

4. Action Plan for capturing growth opportunities

There are five keys to making sure a 100-day planning effort is successful relative to accelerating revenue growth:

1. Know the answer to key questions about the business that establish the foundation for stronger revenue growth.

KeyQuestions

• Are the dynamics of the market changing in any significant way—buyer values, competitor positions, game changing technologies, foreign threats, etc?

• In what segments, geographies and products does the company make its money? What segments, geographies and products are unprofitable?

• What does the market (customers, former customers, non-customers) really think about the company and its products relative to competitors?

• Why does the company win/lose? Whom do they typically beat? Who is their toughest competitor and why?

• What is the company’s sweet spot in the market? What makes this spot so attractive/successful?

• Is the company good at generating new customers?

• Are pricing inefficiencies leaving margin on the table (too low) or causing the company to lose volume (too high)?

• What is the company’s share of spend in its top 50 customers? Do they really know?

• How is the company organized to interface with key customer groups (their go-to-market model) ... telesales, third - party channels, key account managers, etc?

• Are there good metrics that measure key sales activities not just sales outcomes?

• Are sales incentives motivating the proper behaviors?

• Is the best growth opportunity within the company’s core business (current end markets, products, geographies) or outside the core?

2. Ensure that the most important drivers of future growth have been identified and prioritized

3. Clearly define responsibilities, timelines and, most importantly, measurable milestones and targets

4. Decide on the best balance of outcome or practice focus:

Outcome focus requires defined outcomes and allows employees to work toward them with high-level guidelines on their tactical approaches—appropriate when changes are incremental or personnel are experienced. Staff members can and should be held accountable for achieving certain targeted outcomes, not for adherence to methods or practices.

Practice focus requires certain behaviors and actions that are expected to produce the desired results—appropriate when required changes are radical or personnel are inexperienced. Personnel are primarily held accountable for executing the right actions to implement new behaviors.

5. Obtain management ownership and support for the objectives and expectations


100-Day Plans


Growth Strategy

During the holding period, it is important that a portfolio company have a roadmap for achieving its revenue and EBITDA growth. Our strategic growth planning engagements deliver a clear understanding of the sources of growth that will materially contribute to the overall Value Creation Plan for the business.

Our approach begins by analyzing the performance of the company’s current revenue engine and by analyzing the market—mapping offerings, industry sectors, and customer segments that may offer opportunities for revenue growth. The company’s existing capabilities and market position are compared against the opportunities to provide a basis for assessing opportunity viability and setting initiative priorities as shown in the framework chart below. Defining actions required to implement the initiatives completes the plan.

LowLow High

Core Business to Strengthen

Potential New Revenue Generating Initiatives

High

Ability to Capture Opportunities

High Potential Opportunities for Revenue & EBITDA Growth

Opportunity Priority Map

Att

ract

iven

ess

of

Opp

ort

unit

ies

Growth Strategy (continued)


Sometimes, the growth strategy effort highlights a gap between the future revenue aspirations and the revenue trajectory available in the core business. In such a case, the growth strategy must include considering the extension of the core business into new areas—new end markets, new geographies, new product lines and/or new channels.

Blue Ridge Partners supports our clients in a variety of growth strategy related projects, including:

• Growth Plan Development: The identification of growth alternatives, the selection of the most attractive and impactful paths and the preparation of a specific implementation plan.

• AdjacencyScanning:A methodical approach for quickly evaluating a large number of potentially attractive adjacencies, and prioritizing them based on company objectives and strategic and financial criteria.

• NewMarketAssessmentsandEntryStrategy: In-depth reviews of markets to determine market attractiveness, “what it takes to win,” strategic fit with company’s capabilities and assets, and best way to enter, e.g., make vs. buy.

Rev

enue

Core Business, with Tactical Improvements Implemented

Aspiration

Time

GAP

Addressed through Growth Strategy


Commercial Effectiveness

Growth requires strong and reliable execution from the commercial functions of an organization—sales, service and marketing. Collectively, these areas hold many common opportunities to accelerate revenue growth due to a confluence of internal and external forces, including the following:

1. Buyersaresmarter,moredemanding,andlessdependentontraditionalsalespeople. They have initiated new procurement practices and have readily available information regarding vendors on the Internet. Sellers must reach buyers via many channels to deliver products, services and information when, where, and how buyers want it.

2. Newcustomeracquisitionneedsmore,notless,attentionasacompanygrows. As a company grows, it must pay increasing attention to attracting new customers. Existing customers attrite and must be replaced for growth to continue. Acquiring new customers is arguably the single most difficult challenge for most commercial organizations.

3. Tapping new sources of customers requires selling smarter, not harder. Over time, the easy sources of new customers become tapped out. Some companies decide to focus on existing customers at the expense of efforts to add new customers. This may be appropriate for some organizations, but for others it can lead to slow growth or even negative growth.

4. Thepowerofcompany-directed,vs.self-directed,salesteams. Traditionally, most sales organizations hire experienced sales reps, give them a territory, train them on the company’s products, provide a motivating compensation plan and then wait for the results. There is a shift happening in sales leadership that no longer accepts this approach. Instead, sales reps also are given support in understanding the targets in their market and understanding how much time to spend on new customers versus existing customers. The sales reps are provided playbooks describing specific actions to be taken and are measured on selling activities not just outputs.

The high-performing commercial organization must be a well-tuned system that can reliably create successful salespeople by guiding them to the most effective strategies for acquiring, retaining, and growing profitable customer relationships.


Commercial Effectiveness (continued)

Leadership & engagementSales management

practices & cadenceGoals & accountability

Planning, budgeting & target setting

Change readiness & continuous improvement

MetricsReporting & dashboards

AnalyticsContracting & pricing

Sales & marketing systemsProposal & pricing tools

Market intelligence & insightCustomer segments & targets

Value proposition & pricing strategy

Brand positioningBrand architecture

Targeting & messagingBrand stewardship

Alignment with value creation strategy

The Commercial Effectiveness System identifies 50 best practices areas against which the current organization is assessed and gaps are identified

Channel structureOrganizational structure

Roles & responsibilitiesCoverage model

Span of control Territory design & assignment

Commercial economics

Campaign planningContent & messaging

Tactics & channel management

Qualification & scoringLead nurturing

Routing & tracking

Demand & Lead Generation

Recruiting & on-boardingCompetency models

Skills developmentPerformance management

Career progressionCompensation &

recognition

Talent & Motivation

Customer needs definitionValue messaging

Product pricing managementProduct information

New product commercialization

Product Marketing

Sales process & cadenceTerritory & account planning

Lead managementPipeline managementAccount managementChannel management

Pricing execution

Sales Processes

Com

mercial Operations

GO-TO-MARKET MODEL

MANAGEMENT & CULTURE

COMMERCIAL OPERATIONS

COMMERCIAL &BRAND STRATEGY

Capturing these opportunities may require a transformation in many commercial organizations. Our commercial effectiveness practice is built to assess the strengths and weaknesses of these functions and to identify the changes required to significantly accelerate profitable revenue growth. These changes might address the commercial and brand strategy, the go-to-market model, commercial operations, management and culture, product marketing, demand and lead generation, sales processes and talent and motivation, as depicted on the chart below.


Pricing Optimization

Improvements in pricing effectiveness can have a significant impact on margins and revenue growth. We commonly see our clients achieve 300 to 600 basis points of margin improvement based on our recommended changes in pricing strategy, processes, price points, and tools. Essentially, the opportunity is a function of a company’s pricing power and its pricing capabilities —those with the highest pricing power and the weakest capabilities tend to have the most improvement upside.

Armed with insights gained through the diagnostic activities, we work with our clients to design pricing improvements focused on near-term “quick fixes”, process and executional improvements, and longer term strategic pricing changes. Importantly, designing executable strategies and tactics are key to our approach.

DRIVING RESULTS5KeyPrinciplesForExecution

1. Gain consensus on the top opportunity areas based on the analysis completed during the diagnostic

2. Develop a specific work plan to capture the pricing opportunities with single point of accountability, activities, and due dates

3. Establish clear financial goals and metrics for each category of opportunity

4. Develop and agree on specific performance targets for each metric, including the starting point and goals over the agreed-to timeframe

5. Develop Pricing Value Creation dashboards that enable management and the Board to monitor performance of the key metrics

Time & Difficulty

Pricing Diagnostic Prioritization

Val

ue

STRATEGICPRICING

PROCESS & EXECUTIONIMPROVEMENTS

QUICK FIXES

PRICING POWER

Value DriversMarket

Dynamics

Product/Service Differentiation

Attractiveness of Substitutes

Ease of Acquisition

Competitive Intensity

Brand

PRICINGCAPABILITIES

Strategic Planning Execution

Organization

Intelligence

Tools

x = Insights into the Pricing

UpsideOpportunity

Having the “right” products to sell is fundamental to revenue growth. In a world with rapidly changing customer needs and technologies, it is easy for product portfolios to get out of sync.

A product portfolio clogged with unprofitable products is a barrier to focusing resources and investment on profitable growth. It is not unusual to find companies where 20% of product-level sales are unprofitable—they make money on 80% of sales and give much of it back on the remaining sales.

Then there are companies too slow to add products to meet emerging customer needs or missing opportunities to edge into new areas where they have established credibility. In such cases, growth is restricted by an insufficient product portfolio.

Eliminating unprofitable products is not typically straightforward. Products that are unprofitable may have strategic roles such as completing a bill of materials or countering a competitive offering. Likewise, adding products can be very subjective and can be driven by the loudest voice in the room rather than what is best for the company.

What is needed is a fact-based process to determine which products should be eliminated and which can be added. With a revitalized product portfolio, resources will be focused on products that will strengthen the customer value proposition and increase competitive differentiation.

Revitalizing the Product Portfolio

1. Get clear on the customer value proposition for each targeted segment.

2. Explore opportunities to improve margin on unprofitable products through price, cost, order parameters and other actions

3. Eliminate unprofitable, non-strategic products.

4. Screen and invest in new products that fortify the value proposition.

5. Re-think product portfolio governance and monitor product-level effectiveness


Product Portfolio Revitalization

Bread & Butter Marginal

Mar

gin-

Tak

ers

Under-Water

Inventory $

Dogs

Revitalizing the Product Portfolio

Co

ntri

buti

on

Rat

e(C

ont

ribut

ion/

Inve

nto

ry)

Re-Structure & Re-Invest

Can profitability be improved via pricing, cost, order parameters, and other actions?

Does solid strategic rationale exist for investing in unprofitable products?

Key questions for unprofitable products:

Are there gaps in our offering important to our target customers?

Have we "earned the right" to offer new products or enter new categories that fit our value proposition?

Key questions for potential product gaps:


Exit Planning (“T-1”)

Private equity firms that are approximately one year away from exiting an existing business (“T-1”) are interested in three issues:

1. Which potential buyers or class of buyers might be willing to pay a premium price for this company, and what would they find most attractive about the company?

2. How can we shape this business during our last year of ownership to optimize EBITDA and make the business most attractive to these potential buyers?

3. What is the “growth story” for this business? Where is the growth runway for the next owner, how big are the markets, what is the company’s competitive advantage, and what early steps can be taken in the final year of ownership to demonstrate the viability of these future growth paths?

The growth story needs to be supported by a fact base and market insights to stand the scrutiny of the buyer’s due diligence. These facts and insights include market research, market sizing, economic analysis, competitive analysis, value proposition analysis relative to competitors, company capability analysis, and other factors. Some companies already have a growth story and need only to validate/fortify it with facts. Other companies lacking a growth story need to develop a growth strategy and implementation plan.

We help the CEO and the leadership team understand the facts behind the growth story and prepare them to share it with potential buyers: in the Pitch Book, in the verbal presentations, and in discussions about the business with potential acquirers.

Ourexitplanningapproachincludestwokeyservicestohelpprepareforapotentialexit:

Higher exit multiple

Near-term EBITDA enhancers

Pressure-tested growth story/plan that is fact-based and

can withstand rigorous due diligence

Better sense of potential buyers and how this asset fits

strategically for them

An equipped and practiced management team

Increased speed of sale process

Exit Planning

What is the growth story for the business? Where is the growth runway for the next buyer?

What facts, market dynamics and market insights support this growth story?

Does the business have the capabilities to adequately execute the growth strategy?

How would this growth be achieved, and can success be demonstrated before exit?

Can the growth story be explained by management and hold up to rigorous due diligence?

Growth Story Development(Based on Facts and Market Analysis)

Who are potential buyers of this business?

What are their strategic needs?

How well does this business fit with those needs?

Can the business be slightly repositioned to further increase the attractiveness and valuation?

Potential Buyer Assessment(Classes of Potential Buyers)

Blue Ridge Partners uses many proprietary tools and approaches to understand the strengths and weaknesses of a company’s revenue engine. We analyze a company from both internal and external viewpoints so we can rapidly identify improvement opportunities, prioritize them and assist with implementation.

TheDataProbe: a set of approximately 25 fact-based analyses/charts that assess the overall performance of a sales and marketing organization. These analyses create new insights which can lead to improvement opportunities

TheNineVoicesoftheMarket®: a methodology for gathering deep and relevant insights regarding the market, customer decision-making, customer needs and competitive positioning

Net Promoter Score© v2.0: a second generation approach for understanding customer behaviors and analyzing the drivers of customer loyalty (used in conjunction with The Nine Voices of the Market®)

100 Behaviors of High Performing Revenue Engines™: a tool for evaluating commercial effectiveness relative to a set of “better practices” we have observed from over 300 companies

Skill/WillEvaluator:a structured methodology for evaluating the capabilities of the individual sales representatives, sales managers and marketing team. This evaluation is completed relative to their existing skills, their willingness to apply their skills and their willingness to learn new ones

Opportunities For Growth: a structured methodology for identifying a company’s core markets and the potential growth areas adjacent to and beyond their core

PricingEffectivenessDiagnostic™: a tool focused on assessing a company’s Pricing Power and Pricing Capabilities for quickly identifying the specific areas that need improvement to maximize the effectiveness of pricing

Waves of Change: our approach to prioritizing and phasing-in a change program allowing the most important, foundational changes to be completed first and within a controllable change management program

ImpactAssuranceProgram: our program for measuring and monitoring the impact achieved by our clients based on the recommendations we have developed together with them

Proprietary Tools and Approaches

Net Promoter Score is copyrighted by Satmetrix Systems, Inc.

1350BeverlyRoadSuite 115McLean,VA22101

Industries We Serve• Business Services

• Chemicals

• Consumer Products and Services

• Distribution

• Energy

• Financial Services

• Food and Beverage

• Healthcare

• Industrial Products

• Pharmaceuticals

• Restaurants and Hospitality

• Technology, Media and Telecommunications

• Transportation and Logistics

Our Locations• Boston

• Chicago

• Dallas

• Denver

• Houston

• London

• Los Angeles

• New York

• Philadelphia

• Salt Lake City

• San Francisco

• Washington, DC

Connect With Us• Telephone 703-448-1881

• [email protected]

• www.blueridgepartners.com

BRP Private Equity Brochure

Documents

Transcript of BRP Private Equity Brochure