Due Diligence to Exit Finding and Mining Value Hidden in Operations September, 2012 The Competition is Fierce. Change the Rules.
Company Overview The ProAction Group serves private equity firms who invest in middle-market consumer products, manufacturing, distribution, healthcare and business services companies. Our clients recognize the need to improve EBITDA, Working Capital, Competitive Positioning and Organizational Effectiveness by adding an increased focus on operational excellence. We act as a resource extension to owners and management teams. We provide operational expertise, resources, and tools to help maximize performance. What makes us distinctive is that we get measurable and sustainable results. We identify and quantify opportunities, then turn them into reality. We have a relentless drive to help our clients build winning companies. Core Capabilities: Manufacturing Operations Supply Chain Operations Sales Operations Lean enterprise / Lean manufacturing Outsourcing / asset rationalization Quality systems and process Inventory and materials management Value Engineering Strategy development Supplier development Asia / global Logistics (freight, warehousing and planning) Pricing strategies, processes and disciplines Customer and product profitability Channel strategies and management Sales & operations planning (S&OP) Product development process 2
ProAction s Role in each stage Stage 1 Pre- Stage 2 At Stage 3 First Year Post Stage 4 Through Exit Due Diligence Preparation of 100 Day Strategy Implementation of Strategy Ensuring Sustainability Identify and Quantify Opportunities to Increase EBITDA, Improve Competitive Position and Reduce Working Capital. Identify and Quantify hidden risks and opportunities in the operations and management processes. Validate the investment thesis, from an operational perspective. Participate in Strategic Planning Process. Facilitate management process to develop manufacturing, distribution, quality and sourcing strategies / project plans. Lead the management team through stabilizing the business operations (as needed) and through realizing the future state. Implement specific projects and processes requested by management / ownership. Help the company institutionalize the habit of improving. Transition to a coaching / monitoring role. Support specific initiatives as appropriate. Help prepare the company for financial events. 3
Due Diligence: ProAction s Role An effective Due Diligence Process addresses company strategy, human resources and organizational development, leadership, IT, and core operating functions. ProAction s Role in the Due Diligence Process: Assess the Company s overall Operational Effectiveness and management s ability to execute on its strategic plan (Scalability / Depth of Infrastructure / Quality of Systems). Identify and Quantify Opportunities to Increase EBITDA and Reduce Working Capital. Identify and Quantify hidden risks and opportunities in the operations and management processes. Assess, Document and Quantify opportunities for the Private Equity firm and its Financing Partners (Validate the investment thesis, from an operational perspective). 4
Due Diligence: Areas / Hypotheses We Test and Quantify Increase EBITDA Throughput Improve Processes Fixed & Variable Expenses Product Pricing Improve Balance Sheet / Cash Flow Shrink the Order to Cash Cycle Improve Inventory Management Increase / Speed Collections Minimize Unnecessary Capex Asset Utilization Risk Reduction Enhance Competitive Position Scalability Lead times Flexibility Time to market Quality Address Gaps in Investment Thesis Enterprise Risk Including IT Operational Disaster Recovery Skills Assessment of Organization Organizational Development Needs Cost structure 5
Post Acquisition: Execution Transform Management Goals into Actionable Initiatives Detailed project plans focused on tangible results Quantification of costs and benefits Identify Opportunities Management Doesn t See Best ideas from multiple industries and experiences Assessment model and other analytical tools Third party perspective Drive Execution through Resource Extension Experienced people Proven methodologies, tools, and templates Accelerate Results Project leadership experts Dedicated resources working with management Transfer Capabilities, Knowledge and Tools Sustainability of gains Education & Training Metrics 6
Case Studies: Diligence to Exit
Case Study: Packaging Company Acquisition Pre- Due Diligence Identified ~$1 million in EBITDA improvements. Documented the savings, communicated with investment committee and financing partners. Information helped the PE firm better assess investment opportunity and develop a strategic plan. At Preparation of 100 Day Strategy Participated in Strategic Planning Process. Facilitated management process to develop manufacturing and sourcing strategies / project plans. Year 1 Implementation of Strategy Led management and personnel through lean implementation and global sourcing efforts. Realized nearly $2 million in annual EBITDA gains. Increased customer service levels. Operating Capacity increased by over 20%. Year 1 & 2 Ensuring Sustainability Company is now leading the efforts on their own. Pursuing ~$1 million of saving from additional lean and global sourcing projects. 8
Case Study: Distribution Company Acquisition Pre- Due Diligence Identified ~$2.7 million in EBITDA and $6.5 million in working capital improvements. Identified opportunities to increase order fulfillment levels from mid 80 s to over 95%. Documented opportunities to consolidate facilities and reduce square feet utilized by over 250,000 sq ft. At Preparation of 100 Day Strategy Led the management team through prioritizing improvements to realize the future state. Developed a full 6 month implementation plan and timeline with management. Months 1-6 Implementation of Strategy Led management and personnel through inventory planning, lean implementation and sales and operations planning (S&OP) efforts. Within 6 Months: Realized over $3 million in annual EBITDA gains. Increased customer service levels to over 97%. Inventory turns increased from 3.8 to 4.3. Months 7-12 Ensuring Sustainability Company is now leading the efforts on their own. EBITDA gains will surpass $5.3 million annually. 9
Case Study: Snow Removal Manufacturer Acquisition Pre- Due Diligence Identified the means for the company to increase EBITDA margins from 32% to 36%. Specifically, we identified the opportunity to: Consolidate facilities through lean manufacturing processes. Reduce product cost and increase manufacturability and quality through value added engineering processes. Reduce scrap, back orders, expediting costs and lost sales during new product roll outs (PPAP processes). At Year 1 & 2 Preparation of 100 Day Strategy Implementation of Strategy Led the management team through prioritizing improvements to realize the future state. Implemented Lean and Quality improvements that led to: 14% reduction in labor costs. 25% reduction in floor space utilized. An increase in EBITDA from 32% to 36%. Dramatic reductions in delays, scrap and rework costs linked to new product roll outs. Year 2 & 3 Ensuring Sustainability One on one coaching and mentoring for plant managers led to continuing improvements after our project completed. Company is now leading the efforts on their own. 10
Tim Van Mieghem The ProAction Group (312) 371-8323 tvm@proactiongroup.com Realizing Value Hidden in Operations