There are times when a portfolio company’s potential is simply not being realized, and you’re having trouble getting to the bottom of why. Management struggles to explain the gap.
This presents a couple of problems. The first is that the “stale” company not only drains your time and energy, it also impacts the performance of your fund. Without actionable information, you invest a disproportionate amount of your resources trying to improve the company’s performance without substantial results. But the other edge of that sword is that an unprofitable organization isn’t easy to divest. You can’t seem to move the needle, but you can’t successfully market the company until you do.
That’s where we come in. It’s our job to take this problem off your plate temporarily while we investigate. We go straight to the heart of how the company is being managed today, providing you with a clear look at how that’s affecting performance levels. We cut through the communication issues that are holding you back, and find the operational changes and opportunities that will close your EBITDA gap. We can normally complete this review in less than a month. Then we go over the results in detail with you, with your management team by our side (we do this WITH your management team).
When we sit down with you to do a deep dive into numbers, financials, and our observations on your current processes, our goal is to build a bridge between the company’s performance and your expectations. We’re very frank and open about what’s being done right, both because you need to know, and because acknowledging these successes helps your management team react to constructive criticism in a proactive way. We don’t saddle management with blanket mandates. You’ll know what factors are constraining change, and we’ll recommend countermeasures to remove those obstacles. This focus on the how, rather than just the what, helps eliminate frustration within the management team by giving them a clear course of action.
Once everyone is on the same page, we engage in collaborative problem solving with your team. We’ve found this is crucial to the transformation process. With all parties invested in a positive outcome, we’re able to eliminate wasted effort and recover the evasive earning potential.
Recently, we completed this process for a private equity firm with what they described as “a $5 million portfolio company doing $3 million” in EBITDA. The plan we developed in conjunction with their team has put them on the path to achieve $4.5 million in EBITDA. We worked with another portfolio company 6 months before they entered an exit process. In this case, while we reported on the overall potential for EBITDA improvements, we focused on the equity firm’s short term goal of accruing as much EBITDA as possible before the exit. This ten-week project drove $900K, not in one-time, but in annualized savings.
If you’re feeling handcuffed to a languishing portfolio company, there’s probably plenty of frustration to go around. Bringing in a third party sidesteps any ongoing conflicts and encourages buy-in. Ultimately, it gives you an actionable plan within a workable timeframe. If the idea of an endpoint to your portfolio woes makes you breathe a sigh of relief, reach out to us. We can help.