Soup to nuts, a mile wide, 6” deep, everything you need to know about private equity as a candidate, or investor. It elevates everyone’s understanding. I frequently also say that private equity is the one place on the planet where grey hair is a plus. Created by Mike Lorelli.
2. 2
Agenda
History
Returns
Where is the money coming from?
Terminology
The p.e. model
p.e. compensation
Results and Performance Measures
‘The Funnel’
Management Compensation
The right mindset when dealing with private equity
10 Consultant keys to The p.e. Vault
Importance of a good LinkedIn profile. . . you want to hear about
good searches
Tips to drive p.e. ‘stickiness’ and your personal ‘hits’
Don’t forget about Board roles
9. 9
Percentage of Capital by LP type
LBO Funds
0.3 1.8
2.2
3.6
8.4
10.6
14.2
16.2
28.7
6.4
5.4
3.9
Public pension funds
Funds of funds
Corp pension funds & corps
Banks/financial services cos.
Endowments/foundations
Insurance Cos.
Sovereign wealth funds
Wealthy investors/feeder funds
GP contribution
Family offices
Union pension funds
Other
11. 11
Many ways to categorize the 1,700
By size
• Large $1 billion+ revenues
• Mid-market > $150 million
• Small < $150 million
By sector specialty
• Healthcare
• Consumer
• QSR
• IT
• Financial services
• etc.
Net-net, sector first; and mid-market; not lower or
upper
14. 14
Top Fund Managers
Rank Firm City Capital ($Millions)
1 TPG Capital Fort Worth (Texas) $50,553
2 Goldman Sachs Principal Investment Area New York $47,224
3 The Carlyle Group Washington DC $40,540
4 Kohlberg Kravis Roberts & Co. New York $40,215
5 The Blackstone Group New York $33,418
6 Apollo Global Management New York $33,813
7 Bain Capital Boston $29,402
8 CVC Capital Partners London $25,068
9 Hellman & Friedman San Francisco $17,200
10 Apax Partners London $16,637
11 Warburg Pincus New York $15,000
12 Cerberus Capital Management New York $14,900
13 Advent International Boston $14,519
14 Permia London $13,572
15 Oaktree Capital Management Los Angeles $13,045
16 Tera Firma Capital Partners London $12,249
17 Providence Equity Partners Providence (RI) $12,100
18 Clayton Dubilier & Rice New York $11,404
19 Charterhouse Capital Partners London $11,268
20 Teacher’s Private Captial Toronto $10,758
16. 16
The LBO model
Purchase
• 7.0 X $9m = $63
• Cash 27
• Debt 36
Sale
• 8.0 X $14.1m = $113
• Debt 32
• Proceeds 81
17. 17
The LBO model
Purchase
• 7.0 X $9m = $63
• Cash 27
• Debt 36
Sale
• 8.0 X $14.1m = $113
• Debt 32
• Proceeds 81
= 3.0 X cash-on-
cash
18. The p.e. / L.P Model Pelosi 2008 Fund
2008 2009 2010 2011 2012 2013 2014 2015 2016
A
B
C D
E
F
G
H
I
J
F
E
DA
B
C
Sale
Purchase
19. 19
The p.e. / L.P Model Pelosi 2008 Fund
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
A
B
C
D
E
F
G H I
J
F
E
DA
B
C
Sale
Purchase
Invest Harvest
20. 20
p.e. Compensation
2% of managed capital
• pays salaries, rent, and nominal bonuses
20% carried interest from profits on distributions*
22. 22
Buyout Fund Sample
Partnership/Year
Capital
Committed
(M)
Capital
Cont.
(M)
Dist. As
of (M)
Net IRR
As of (%)
Oregon State Treasury 12/31/13 12/31/13
2000 Riverside Capital Appreciation Fund/2000 $50.0 $46.3 $73.1 22.1
2003 Riverside Capital Appreciation Fund/2003 $75.0 $77.4 $47.1 15.3
Apollo Investment Fund VI LP/2006 $200.0 $223.1 $57.5 3.1
Aurora Equity Partners III LP/2004 $50.0 $53.0 $20.8 17.7
BCI Growth V LP/1999 $75.0 $72.9 $27.2 -8.7
Castle Harlan Partners IV LP/2002 $100.0 $102.3 $109.8 17.3
CVC Capital Partners Asia Pacific II LP/2005 $100.0 $122.4 $38.3 -6.2
Diamond Castle Partners IV LP/2005 $100.0 $71.3 $16.1 -4.5
Endeavor Capital Fund III LP/2000 $25.0 $24.5 $43.7 28.9
Fenway Partners Capital Fund III LP/2006 $50.0 $53.9 $19.6 -4.9
Hicks Muse Tate & Furst Europe Fund LP/1999 $99.3 $116.8 $196.9 21.7
KKR European Fund LP/1999 $400.0 $532.3 $778.8 19.3
KKR Millennium Fund LP/2002 $1,000.0 $1,308.8 $1,064.2 17.9
Lion Capital Fund I LP/2004 $99.8 $108.8 $117.2 26.5
Oak Hill Capital Partners II LP/2004 $100.0 $105.8 $15.7 6.8
Parthenon Investors III LP/2005 $100.0 $67.8 $8.7 1.7
Rhone Partners III LP/2006 $100.0 $65.4 $11.5 5.8
TPG Partners III LP/2000 $300.0 $284.5 $571.9 24.5
HarbourVest Partners 2004 Direct Fund/2004 $75.0 $74.1 $21.1 11.1
23. 23
A typical 10 company fund result
2 out-of-the-park
1 triple
2 doubles
3 singles
2 the bank took the car keys
25. 25
Options for Executives Working with Private Equity
Fund
Commit-
ment
Advisor/ Consultant
Fee
Deal Executive / Executive in Residence
retainer+upside
Portfolio Company Management
salary+bonus+equity
Executive’s Income
Expert Network / Interim Executive
hourly comp
Operating Partner
salary+bonus+carry
David Teten, www.Teten.com/executive
26. 26
Who the p.e. wants to meet
Job Seekers
Deal Resource
Thesis-Driven
Deal Exec
Target-
Driven Deal
Exec
Source: Andy Thompson, Notch Partners
27. 27
Management Compensation
Base Bonus Equity
CEO $200K - $450K 50-75% 5.0% equity*
CFO/COO 125K - $275K 40-50% 1.5% equity
CMO 125K- $225K 25-33% 1.0% equity
* and opportunity to co-invest
28. 28
The Private Equity vs. Traditional C-level
Greater emphasis on time (driven by Hold Period)
Tenure can be compared to ‘the half-life of uranium’
Better fits are executives who:
• Exhibit “Jack be nimble, Jack be quick” temperament
• Be a Jack-of-all-trades
• Work on scarce resources
– you may be making the run to Staples for supplies today
– you write the Strategic Plan (no Corporate Staff)
• Love tight quarters
– You may be sharing a pillow some nights with the p.e’s Deal Team
29. 29
Your Pride Vs. Their Need
Your Pride:
“Action oriented executive with 21
years leadership experience with
Fortune 100 Allied Chemical. ”
30. 30
Your Pride Vs. Their Need
Your Pride:
“Action oriented executive with 21
years leadership experience with
Fortune 100 Allied Chemical. ”
Their Point-of-View:
“21 years! Ugh! We want to exit in
Year 4. . . Year 7 max. Please get
this Rip Van Winkle out of my
sight!”
“He probably takes 9 years to
figure out what Google people do
in 3 years!”
31. 31
Your Revised “Pride”
Your Pride:
“I’m a Fortune trained leader that
has made a step change in the
EBITDA CAGR in every
assignment."
32. 32
Your Revised “Pride”
Your Pride:
“I’m a Fortune trained leader who
has made a step change in the
EBITDA CAGR in every
assignment."
Their Read:
“Jesus!!!” Here comes my bonus!”
Trump, please don’t tax carried
interest!” This is our guy!
36. 36
Consultant Angles Into ‘The Vault’- pre-Acq.
Do the Marketing & Sales due diligence
(never for free)
37. 37
10 Consultant Angles Into ‘The Vault’
1. Write their Strategic Plan
2. Do the Category Segmentation
3. Provide a killer Competitive Assessment
4. Work with The Management Team on ‘The 100 Day Plan’
5. Come up with Rapid Change Ideas
6. Margin Enhancement ideas
38. 38
10 Consultant Angles Into ‘The Vault’
7. Fast Revenue Ideas
8. Show them how to build out the geographic footprint
9. Be the meanest about sucking the eyeballs out of the competitor
1. making them bleed is a winning strategy (a page from The Cola Wars)
10. Show them who they should acquire, to:
• Add new markets, fast
• Add new channels, fast
• Add new products, fast
• Build the geographic footprint, fast
39. 39
The Importance of a Killer LinkedIn Profile
50% of candidates are
found via LinkedIn
Or they will at least check
you out!
40. below average
slightly above average
Above average
Very Good
Excellent
Outstanding
Killer*
You don’t exist!
You are 1 of 5,000
You are 1 of 2,000
You are 1 of 1,000
You are 1 of 500
You are 1 of 100
460 million LinkedIn members
You are 1 of 200
43. 43
Consider 3 or 4 Subheads
• PROFITIBLY DRIVE MARKET SHARE
• As CMO Dunkin Brands, rekindled marked share growth supporting 6,000 locations.
• As CMO Baskin-Robbins International, developed Global Marketing Platform that energized core 35 countries into double digit
growth for 5 years.
• CREATE NEW CHANNELS
• Led development of Bruegger’s, Timothy’s World Coffee, Michele’s Bakere Café, and Mmmuffuins into airport, college campus, and
other non-traditional channels.
• Developed co-brand model for Auntie Anne’s which led to 200+ unit expansion with sister company Carvel.
.
• A NEW PRODUCT CREATOR
• Created and introduced Subway’s $5 Sub which generated $1.4 billion in system-wide sales in its launch year.
• AGGRESSIVELY BUILD INTERNATIONAL FOOTPRINTS
• Expanded Quiznos from 14 to 32 countries.
• Led expansion with private equity group for Auntie Anne’s to license into 25 markets.
44. 44
ps Be thinking about your Board roles
It’s never too early
Get on one serious (well paying) Board by your late 40’s
You should be on two by your mid 50’s
There is an effort and work plan involved:
www.fasterlandings.com/
“Landing Board Seats” tab
45. 45
Lots of p.e. CMO, Consulting, Board Opportunities
In the US:
5,000 public companies X 7 = 35,000 outside directors
16,821 private equity companies X 2 = 33,000 outside directors
48. 48
Michael K. Lorelli
15 Norman Lane
Darien, CT 06820
Office: 203 655-2444
FAX: 203 655-6916
Email: miklorelli@aol.com
Website: www.Lorelli.net
www.LinkedIn.com/in/MikeLorelli
http://www.gplus.to/MikeLorelli
Mike Lorelli’s 30-year career spans a wide range of consumer products and services, and
B2B categories, with responsibilities for both domestic and international units. His years as a
line-operating manager have been with Fortune 100 companies: PepsiCo and Bristol Myers
Squibb. For the last 14 years, as CEO, he has led revitalizations and turnarounds for private
equity firms. For example, Dr. John Rutledge, Chairman of Rutledge Capital, will say:
“I would invade China with Mike alone in a rubber boat.” He is presently An Operating
Partner at Falconhead Capital, and Executive Chairman of the Board, Rita’s Franchise
company, the nations leading Italian Ice and frozen custard chain.
Mike has also led CEO engagements for Riverside Company, Rutledge Capital, and
Pouschine Cook Capital.
Mike’s assignments at PepsiCo included CMO for PepsiCo’s beverage sector, President of
Pepsi-Cola East, a $1.5 Billion operating company, and President for Pizza Hut’s
International division where he led a “global or bust” charge, resulting in expanding the
Company’s presence from 68 to 92 countries, surpassing McDonalds in country count.
During his PepsiCo tenure, he is given credit for authoring the soft drink company’s “Big
Event Marketing” strategy, which coupled the product with leading- edge events in
entertainment, sports, consumer electronics, movies and home video.
Mike holds a Bachelor of Engineering degree in Industrial Engineering from New York
University, and an MBA in Marketing from NYU’s Stern Graduate School of Business. He
has traveled to 58 countries, is an avid runner, claims to excel at no sport, is an active
private pilot, member The CEO Trust, former member of YPO, and author of the childrens’
best-seller “Traveling Again, Dad?” with profits donated to childrens’ charities. Mike is also a
Director of CPKelco.. He holds a Masters Professional Director Certification from The
American College of Corporate Directors, and is also an NACD 2011 Masters Governance
Fellow. He is also a registered speaker with Vistage International.
Leading The World In Burn Care
Michael K. Lorelli
Notas del editor
The p.e. life may seem glamorous and easy, but take a look at the statistics from his side.
That’s a lot of frogs to kiss for one date.