October 2015

OPERATIONAL
EXCELLENCE
SPECIAL 2015
A PEI supplement
Finding the perfect model
Mastering minority stakes
Big data to chew overA warning for GPs...and moreSponsors:
CinvenHumatica
McGladrey

privateequityinternational.com

PEI Operational Excellence Awards 2015
INTRODUCTION

Best in the businessWelcome to Private Equity International’s fourth
Operational Excellence Awards — our annual celebrationof the industry’s most inspirational value creation stories
from the last year. By Isobel Markham

The days of buying a business, leveraging it to the hilt and selling it on twoor three years later at a hefty profit
are long gone. With growth rates indeveloped – and many developing –countries at rock bottom, GPs can’t
rely solely on macro trends andmarket conditions to pull in stellar
returns. If you want to succeed in
private equity in 2015’s world, youneed to bring something else to thetable.
Adding value to a portfolio
company through true operationalchange is an accomplishment often
talked about, but rarely demonstrated. In recent years huge swathesof the GP community have added

18

operational capabilities to their arsenal. But is it being reflected in thebusinesses they’re ultimately selling?
At a time when many investors
are looking to rationalise their GPrelationships, it’s never been more
important for firms to actually demonstrate – and not just shout about– their value creation credentials
if they want to stand out from thecrowd.
This is where our Operational
Excellence Awards come in. Now
in their fourth year, we introduced
these awards to try to answer aquestion that’s become increasingly
important to LPs: who are the best
operators in the industry?
private equity internationalWe asked GPs to submit any
investments either fully or partly
realised since June 2014 that theyfelt were a particularly good exampleof their ability to deliver operational
value as owners.
Entrants were asked to provide
specific details of the changes and theinitiatives they had undertaken, fromproduct development, to acquisition
activity, to supply chain improvement, to management enhancement.
They were also asked to provide
tangible evidence of how these initiatives created value, whether in termsof top-line sales growth, productivity
or capacity building. Impressive exit
multiples were clearly a plus, but themain thing our judges were looking
for was some genuinely transformative work.
Entries were invited from three
regions – Americas, Asia-Pacific andEurope, Middle East and Africa.
We then divided them up into four
distinct size categories, according
to the deal’s entry price – largecap (greater than $500 million),
upper mid-market ($150 million$500 million), lower mid-market($50 million-$150 million) and smallcap (less than $50 million).
Next, we convened a distinguished panel of judges in each of thethree regions. They were tasked withanalysing the short-listed entries,
debating their worth and reaching aconsensus on which represented thebest example of operational excellence in each size category.
So what was it they werelooking for? For starters, somethingoctober 2015

PEI Operational Excellence Awards 2015

far beyond a great exit multiple. “Thechallenge of judging the Operational
Excellence Awards is that it is not
the Deal of the Year Awards,” said
EMEA judge Miles Graham. “Somesubmissions had impressive returns,
but many of these reflected smart
market-timing calls by deal teams.”
Thomas Pütter, chairman andchief executive of Ancora Finance,
agreed that the majority of theentries demonstrated good growth
management. However, doing a great
job as a private equity investor does
not equate to effecting true operational change.
“Having a good business idea, avision to fill a gap in a market andthen doing so does not necessarilymean that the execution of the plan
represents operational excellence,”
Pütter said.
Antoon Schneider, who leads The
Boston Consulting Group’s privateequity work in London, thought thisyear’s batch included many strong
examples of operational excellence,
given that the majority of them wereheld throughout the global financial
crisis.
“The entries were all of very highquality, with a clear link between theprivate equity firm’s support and thevalue creation. This was particularly
impressive during a holding period
where many of these investments
were experiencing a downturn
period in the general economy,”
Schneider said. “I was looking for
portfolio companies that weresailing against the headwinds or wereable to perform better than market
octo b e r 2015

WINNERSAMERICAS
SMALL CAP
Blue Point Capital Partners —Area Wide Protective
LOWER MID-MARKETSun Capital Partners — Point Blank
UPPER MID-MARKET
Gryphon Investors — Flagstone Foods
LARGE CAPOak Hill Capital Partners —Dave & Buster’s Entertainment

ASIA-PACIFIC
SMALL CAP
Mekong Capital — Golden Gate
LOWER MID-MARKET
Headland Capital Partners —Young Toys
UPPER MID-MARKET
Tokio Marine Capital —Bushu Pharmaceuticals
LARGE CAPCVC Capital Partners — HKBNEMEASMALL CAP
Aurelius — Connectis
LOWER MID-MARKET
OpCapita — GAME DigitalUPPER MID-MARKETSun European Partners — DBApparel
LARGE CAP
Nordic Capital — Thule Groupop e rational excellence s pecial 2 0 1 5conditions. And then I was lookingfor clear action from the private
equity firm that enabled that performance, rather than just a greatmanagement team.”
One example would be NordicCapital, which took the large cap
category in EMEA this year with
Swedish outdoor equipment makerThule Group. A business reliant on
discretionary spend acquired justbefore the crisis hit meant that
Nordic was in for a tough ride, andour judges were impressed with thefirm’s strong turnaround plan andsubsequent focus on strategically
repositioning the brand, arguably
making it more future-proof.
Once again we were delighted
by the calibre of the entries for our
Operational Excellence Awards. The
same goes for our judges, who had tomake some tough decisions.
“Last year there were someslam-dunk winners but this time,in most categories, there werereally hard decisions to be made,”said Suvir Varma, a partner withBain & Company’s Southeast Asia
practice and a judge in the AsiaPacific region.
A warm congratulations to all of
this year’s winners, and to all thosefirms who shared their value creation stories with us. We thoroughly
enjoyed poring over your remarkablecase studies, and we can’t wait tohear more of your inspiring investment stories next year as private
equity firms continue to take operational excellence and future-proofing
to the next level. n19

Asia-Pacific

PEI Operational Excellence Awards 2015

WINNER — UPPER MID-MARKET

Tokio Marine Capital:
Bushu Pharmaceuticals
When Tokio Marine Capital (TMC)
acquired contract manufacturingorganisation (CMO) Bushu Pharmaceuticals in March 2010 it wasa non-core business of Shionogi
Group, one of Japan’s leading new
drug manufacturers.
TMC already had previous
experience of investing in Japanese
healthcare firms such as genericdrugs manufacturer Showa Yakuhin
Kako and Japan Medical Data Centre,
and it saw Bushu as well placed to
grow its production and add foreign
pharmaceutical companies to its customer base.
Bushu was ranked second inJapan’s fast-expanding CMO market,
but TMC’s first priority post-acquisition was investing to upgrade thebusiness to deal with this anticipatedgrowth in demand.
TMC president Koji Sasaski
told Private Equity International thatprior to the investment, Bushu had
merely been the factory, but postinvestment, there was a gradualintegration of the factory and thebusiness to create a renewed focus
on improving profitability.
Sasaki and a colleague wereassigned to work closely with thecompany and monthly meetings
with Bushu’s senior management
were conducted. A number of core
staff members were also seconded
from Shionogi to Bushu and a newcompensation plan was put in place
to align interests.
octo b e r 2015

Sasaki said that all the new projects embarked upon utilised specialist
consultants which helped to affect asignificant increase in production.
Projects included shortening production lead-times, optimising andstreamlining staff assignment, andreviewing flow lines in the plant.
Together these initiatives resulted
in an increase in productivity ofmore than 10 percent during the
project’s first year and an additional
increase of over 20 percent in thefollowing year.
Bushu had previously used a coresales team of just four people, but
Sasaki says that was “at least doubled”
under TMC’s stewardship.
As a Shionogi subsidiary, thesales team’s main role had been tomaintain relationships with existingcustomers, and because many leading
new drug manufacturers that competed with Shionogi were reluctant
to do business with Bushu, creating
new business lines was a tough task.
After TMC acquired Bushu, its
new-found independence saw a
number of foreign new drug manufacturers show interest, allowing it
to expand its global presence witha renewed focus on high-quality
products.
TMC also helped Bushu establish a new business strategy division,
hiring a specialist who had previously
worked alongside the president of
a foreign pharmaceutical manufacturer, as section head. Segregated

Bushu: became
Japan’s leading
dedicated
contract
manufacturing
company

6.0x

Exit multiple

45.7%
IRR

2.6x

Top linerevenue
growth

4.1x

EBITDA growth

op e rational excellence s pecial 2 0 1 5

marketing strategies were established for different customers andthe number of corporate customers
grew by about 30 percent in the five
years after the acquisition.
TMC conducted a refinancing of
its LBO loans to free-up equity toacquire the Misato production plantfrom Eisai in December 2013. Thisgave Bushu a second production
plant, enabling it to triple annual
production capacity from 3.5 billion tablets to 10 billion.
Bushu became Japan’s number
one dedicated CMO company withsales increasing from ¥10 billion
at the time of the investment (31March 2010) to ¥26 billion as at
31 March 2015. EBITDA increased
from ¥1.6 billion to ¥6.5 billion overthe same period. n29