Proaction Groups

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Tag Archives: EBITDA

Portfolio Companies

Stale Portfolio Companies

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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.

Real Numbers

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).

Expert Counsel

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.

Collaboration

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.

Resources

The ProAction Group’s 9-Box System

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Owners and CEOs are constantly working to improve EBITDA and trim waste at portfolio companies. However, no matter how proactive you’ve been in the past, it’s possible to reach a plateau. When you’ve addressed every clear opportunity to reduce waste, but it’s often difficult to identify next steps. This can leave you feeling frustrated, your efforts diluted as you do shallow dives into different aspects of your business looking for places to streamline.

It’s natural to find the process overwhelming, because correcting it requires a deep dive into your company’s data. When your focus is on the day to day running of operations, you may find yourself thinking, “How will I carve out the time?” Your best intentions end up being derailed by more immediate matters. That’s understandable– and that’s why we developed the 9-Box tool. It’s designed to find the dormant potential in your company, through three key ideas:

Triangulation: We begin by looking at your business from multiple vantage points. We’ll draw knowledge and insight from a variety of stakeholders (from the line workers to the C-Suite). In this way, we can provide you with the practical and raw insights you’ve been seeking even if you’ve been trapped under the hood– and we can identify exactly where your hidden, untapped capital might be. Triangulation gives you a sober direction in which to move.

Segmentation: Customers are not equal or the same.  Products are not equal or the same.  Many companies, in fact, treat customers and products the same.  This leads to companies making good money in some segments and actively giving it back in others.  By segmenting your business we expose the patterns and give you clarity.  Clarity that will help you tailor your approach and retain what you earned.

Experience: Theories and models are great, and they can be dangerous.  Decisions about how we treat customers, plan inventory and set pricing should not be left solely to a model.  Experience ensures that practical choices are made and poor decisions are avoided.  During the analysis stage of the 9-Box process, we’ll bring key players in your organization together, combining their expertise with ours to make the bold leaps that will consistently yield the increase in EBITDA you’ve been looking for.

So many companies are draining their own capital without realizing it.  Perhaps their pricing controls need attention, or maybe they’re maintaining the same level of inventory in every item across the board. The company might be giving equal attention to segments of the market that account for very little of its revenue. Somewhere, your company has capital tied up in resources on which you won’t see a return. We can find and free up those resources.

We’ve worked with more than 30 private equity firms, and 170 of their portfolio companies, to tackle this challenge. Let the 9-Box tool be the offensive line that cuts through everyday distractions, and creates room for you to charge forward and make the bold moves that will drive your EBITDA up and working capital needs down.

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