Deals typically fail post-acquisition
primarily because of a lack of
qualified human resources
dedicated to the investments.
turnaround practitioners can provide
the needed interim senior-level
resources to ensure asset redeployment
strategies are realized and can also
assist management with cultural and
organizational change processes to
ensure that successes achieved in
unlocking asset value are sustained.
Filling the Execution Gap
The list of qualified funds able to
undertake complex or underperforming
carve-outs and then orchestrate a
highly successful investment is short.
More than $328 billion of private equity
dry powder is currently available for
investment by 17,000 funds (PitchBook).
However, there are only 351 funds
based in the U.S. and Canada that
identify themselves as firms that
focus on complex situations, special
situations, and turnarounds. Although
these funds control a total of $170
billion ( 52 percent of total dry powder),
only $17.8 billion ( 5 percent of total dry
powder) is controlled by 38 funds that
are oriented to small and mid-sized
companies and have $250 million to
$1 billion of available capital (Preqin).
Originating a proprietary divestiture
investment opportunity typically
involves years of building a successful
investment track record and
relationships with potential corporate
sellers. Sellers typically care about
speed to close, certainty to close, and
price. Hence, public companies and
their financial advisors involved in
divestitures typically only want to
transact with credible suitors—logical
strategic buyers or financial buyers with
a strong brand of closing complex deals.
Because their engagement success is
often centered on successfully closing
a transaction, turnaround practitioners
involved in corporate carve-outs
should be familiar with the capabilities
and reputations of the various buyout
funds positioned as potential buyers.
What typically drives success in the
private equity investing business has
changed over time. In a February 2008
study of private equity value creation,
Boston Consulting Group identified the
1980s as a “leverage era,” the 1990s as
the “multiple expansion era,” the 2000s
as the “earnings growth era,” and the
2010s as the “operational improvement
era.” These 2010-era operational
improvements are driven mostly by
improved management capabilities,
but also by add-on acquisitions. In its
study of 2006-2012 EBITDA growth at
private equity portfolio companies, EY
observed that 44 percent was driven
by organic revenue growth, 26 percent
was driven by bolt-on acquisitions,
and 30 percent was driven by cost
reductions or other initiatives.
While a deal may look great on paper,
only the successful funds allocate
proper attention to the carve-out and
stabilization processes—that is, how
the deal will actually be executed
once the purchase and financing
documents are signed. Deals typically
fail post-acquisition primarily
because of a lack of qualified human
continued on page 14
YELLOWSTONE LANDSCAPE GROUP
AloStar took the time to understand our
business and had the flexibility and creativity
to match the capital structure to our needs.
They asked smart questions, and were
thoughtful in their analysis and approach.
I think the word, “partnership” is overused.
But, I felt like AloStar truly acted as our
partners throughout the entire process. They
listened. They took the time to understand.
This refinancing was a very important step
for us. They helped position the company for
great success over many years.
CHIEF EXECUTIVE OFFICER
YELLOWSTONE LANDSCAPE GROUP, INC.