Securing a job in the equity industry is highly competitive, especially considering the depth of private equity interview questions. Private equity firms assess candidates based on more than just their intelligence. They look for individuals who can navigate situations, understand the value of assets, and think strategically, skills that are often tested in private equity interview questions. Therefore, preparing for the interview is crucial to stand out as a potential candidate.

Private equity interviews are like evaluations that require you to showcase your ability to analyse financial strategies, demonstrate familiarity with various valuation methods, and discuss strategies aligned with the company's goals. Adequate preparation involves acquiring knowledge about finance and understanding the characteristics and driving forces of the private equity firm you aspire to work for.

Preparing for an equity job interview requires proficiency in financial discourse and understanding the unique aspects of the company you're interested in. Learn more about key strategies for acing your private equity job interview with our top 7 preparation tips. Master equity interview questions, case studies, and more.

1. Research The Firm and The Position

Before your interview, dedicate some time to researching the equity company you will be meeting with. Gain an understanding of their investment strategy portfolio companies and recent transactions. Gathering this information demonstrates your enthusiasm for the organisation and allows you to tailor your answers to their specific focus areas. 

Additionally, dive into the details of the position you're applying for. Understand the responsibilities, required skills, and qualifications. Anticipate relevant interview questions that may come up. This could cover technical, behavioural and strategic aspects of the role. This understanding will enable you to discuss how your expertise and abilities align with the role, creating a positive impression on the interviewer.

2. Enhancing Technical Skills for Equity Interviews

Private equity interviews often include modelling, valuation and investment analysis questions. Therefore, it's crucial to review these areas before the interview. Take time to revisit concepts like discounted cash flow (DCF) analysis, valuation methods using multiples and analysing statements. Be prepared to discuss investment strategies such as buyouts, growth equity investments and distressed investing. Understanding these concepts will give you an edge during the interview.

3. Prepare for Case Studies

Case studies are commonly used in equity job interviews. These assessments analyse your ability to evaluate investment opportunities and make decisions. You should practice solving similar case studies to excel in the interview. Finding case studies covering various industries and investment scenarios would also be beneficial. 

It is essential to take note of the factors that influence investment decisions and various valuation methods. Additionally, practising how to present your analysis and recommendations in an organised manner is crucial. The more you practice, the more confident you will become during the interview.

4. Be Ready to Discuss Your Experience

During equity interviews, interviewers want to understand your experience and how it relates to the position you are applying for. Being ready to talk about your achievements and contributions in positions or internships is important. 

Highlight situations where you have demonstrated skills, financial modelling expertise and due diligence abilities. Share examples of transactions you have been involved in or instances where you have added value to portfolio companies. By emphasising experience, you can showcase your skills. Convince the interviewer of your potential for success in the private equity industry.

5. Develop a Compelling Story

Interviewers often ask candidates about their backgrounds and career aspirations. Crafting a story that connects your experiences and interests to the equity industry is important to differentiate yourself from others.

Consider the reasons that have driven you towards pursuing a career in equity, such as your involvement in deal-making, your fascination with analysing business opportunities or your keen interest in the markets. Present your narrative concisely and engagingly, showcasing your passion for this industry.

6. Network with Industry Professionals

Networking plays a role for those aspiring to enter the equity field. Building connections with established professionals can provide insights and potential referrals. 

Attending industry events using networking platforms and conducting interviews with experts are effective strategies to expand your knowledge and demonstrate your commitment during interviews. Learning and advancing your career can be achieved through networking and insightful discussions.

7. Showcase Your Deal Experience

If you have experience working on deals through internships, academic projects or previous positions, be prepared to explain them. Emphasise your contributions throughout the deal process, mainly focusing on diligence, financial modelling, and effective execution.

Make sure your contribution is clear by demonstrating how your efforts improved the team and ultimately led to the deal's success. Use examples to demonstrate your problem-solving skills and ability to overcome challenges.

Final Thoughts

Combining analysis, technical expertise, practice, and networking in the private equity field is crucial to preparing for an interview effectively. These seven suggestions will increase your chances of leaving an impression on interviewers and securing your desired position in the equity sector. Best of luck!

For the latest finance trends, news and advice, visit https://www.finance-monthly.com.

More than $17 billion was collected in 2021, according to data by Private Equity International, followed by $14.5 billion in 2022. This year will likely end at a similar figure as several high-profile healthcare firms have received funding stretching into the tens of millions and beyond. 

These figures show that private equity firms still have a big appetite for the healthcare industry despite wider macroeconomic concerns. As always, there are several key trends driving funding opportunities in the space in 2024. 

A Rebound of Investor Funding From Armistice Capital and Others

Both 2021 and 2022 saw a strong rebound of venture capital funding flowing into health care and, if the countless examples of recent funding announcements are accurate, this rebound is ongoing. 

A lot of this funding has gone to pharmaceutical companies like Eledon Pharmaceuticals, a clinical-stage biotech that’s developing treatments for people undergoing organ transplants. Eldeon raised more than $185 million in April. Investors included BVF Partners LP and Armistice Capital.

The biotechnology and pharmaceutical industries have remained highly attractive to investors due to the cutting-edge research and development of new treatments, vaccines, and therapies currently taking place, many of which were fueled by the pandemic. Advances in gene editing technologies, immunotherapies, and personalized medicine are among the areas of interest to investors. 

Personalized medicine is also a concept that’s gained considerable momentum. Promising to offer tailor-made treatments based on a patient’s genetics, lifestyle, and other individual characteristics, advances in genomics and biomarker research have paved the way for more effective therapies. Investors are drawn to companies at the forefront of developing personalized medicine approaches.

The COVID-19 pandemic also put a spotlight on vaccines, leading to increased investments in vaccine development and manufacturing capabilities. Additionally, there’s been growing interest in vaccine research for other infectious diseases and cancers.

Competition Regulations and Artificial Intelligence

Competition and antitrust enforcement in the United States are expected by many to accelerate and potentially lead to the delay of many high-profile mergers. This is because healthcare is a highly regulated sector. 

As new deals gain traction, it’s entirely plausible that competition bodies may pay closer attention to — and scrutinize — cross-sector convergence with companies outside of the industry. The U.S. Department of Justice is particularly interested in roll-up transactions, which consolidate market share and negotiating power.

Investment continues to flow into health care toward firms specializing in using artificial intelligence and data analytics to improve diagnostics, drug discovery, and personalized medicine. 

AI, machine learning, and data analytics together have a substantial range of applications in the healthcare space, from using them to identify potential drug targets quickly to using AI and big data to help users access accurate information on their symptoms and connect with physicians. There are very few if any, areas in health care where these disruptive technologies will not have an impact. 

Mergers and Acquisitions

Finally — and as always — healthcare companies continued to engage in mergers and acquisitions to expand their product portfolios, pipelines, and geographic reach, a trend driven by the need for diversification and the pursuit of cost synergies.

This is particularly true for emerging markets such as Asia, where pharmaceutical companies have been looking to expand their presence in regions with growing healthcare needs and middle-class populations.

Looking to 2024

The private equity healthcare investment landscape has demonstrated remarkable resilience and sustained growth in recent years despite the pandemic, with billions of dollars pouring into the sector from investors like Armistice Capital. Despite economic uncertainty, 2021 and 2022 witnessed an impressive influx of capital, a trend that’s continued this year and is set to do so again in 2024.

The Roll of Private Equity in Africa

An interview with Nico Oosthuizen, Nio Captial

Mr. Oosthuizen, can you share a brief overview of your role at NIO Capital and your professional journey leading up to it?

My role and mandate as CEO is to ensure that all deployed capital invested is carefully managed and that each investment asset’s operational activities are closely monitored. To ensure that our clearly defined investment strategic growth plans are followed through the identification of the right investments and management of our key analysts. Our local funds exceed R3.2 billion, and I work closely with the investee companies’ operational and financial management to ensure that we achieve the medium and long-term goals of the fund.

The African private equity landscape has developed quite significantly over the last 20 years, especially in South Africa. We aimed to identify specific long-term capital growth investments with a dividend yield that is aligned with the Family Office’s vision. In our South African allocated investment funds, the key focus is on capital growth with a strong focus on mitigating the exchange rate deterioration. It is not easy, especially with the geopolitical risks the continent is facing at the moment.

Could you discuss the foundational values and principles that shape your firm’s private equity strategy?

We believe in a balanced approach with a strong focus on integrity and transparency throughout our investment portfolio.

Our ability to find a unique way of collaborating with the community to ensure upliftment in the investment areas through being open and honest with them about our ability in a project. To ensure that we can deliver on the initial forecast for both the fund and the community at large. Communities that need the upliftment will usually embrace the assistance and thereby ensure that there is a symbiotic relationship that delivers long-term results for everyone involved. Sustainability is deeply ingrained in everything we do.

Could you shed some light on NIO Capital’s investment strategy and philosophy, especially regarding the balance between risk and reward?

Our long-term asset investment strategy is always thoroughly researched to ensure that the investee companies are able to withstand any future market fluctuations.

With the positions we hold in other listed entities, there is always a strategic intent to be able to later exit an investment either through a buyout or by way of an IPO. We will also do a merger of similar investments into an already listed entity, making our future exit much simpler. Most of our industry consolidations are based on legacy assets from a first-generation entrepreneur. NIO found a way to create a long-awaited exit for these owners that had limited succession plans in place for the business. In typical PE strategy will be to consolidate a couple of businesses to cut costs and, as a result, drive sales and optimisation of business processes.

On your website, it’s mentioned that NIO Capital focuses on specific sectors. Please elaborate on why you chose these sectors and what potential you see in them.

• Energy & Mining, specifically renewable energy
• Food and Water Security,
• MedTech,
• FinTech, and
• Property sectors. (Development and listed entities)

NIO Capital plays a significant role in financial services, providing support for listings, restructuring, mergers, and acquisitions. Could you describe your approach to these services?

Our historical experience in the private equity sector has helped us to be able to identify future potential investee assets long before we invest. Through the services we offer, we can ensure that the vision and values of the management are aligned with our fund. This will make a good foundation for further involvement from the fund to invest.

How does NIO Capital decide when to take an active equity position through direct investment versus when to offer services for equity?

Once we have analysed the IM(Investment Memorandum) and completed our due diligence, we will assess if we can make a significant difference in the current position of the business. We use our established network to establish what we can do to improve on the current figures without making too many changes to the business or staff. Balance Sheet optimisation is at the heart of what we do to create a strong footprint to drive the future growth of the business.

What are the key factors you consider when evaluating a potential investment in a company? Are there specific qualities or criteria a company must meet to fit your investment mandate?

First is if it falls in our mandate and our sectors of investment. Secondly, we look at the balance sheet to assess what shape it is currently in and how additional capital will play a role in the growth of the business. Management plays a critical role in our decision. Without good management, the transaction will, most of the time, just be too risky.

In what ways does NIO Capital contribute to the growth and development of its portfolio companies post-investment?

NIO Capital contributes to growth in our investments through our deep sector knowledge of the sectors we have identified to be on our balance sheet for the long term. We only invest in sectors we understand thoroughly and have the in-house skills to add value to these investments.

How does your firm approach Environmental, Social, and Governance (ESG) factors in its investment decisions?

The firm has an ESG policy that we strongly believe in. The African landscape makes it difficult to navigate through these dangers, but through our extensive network in Sub Sahara Africa and the UAE we can quickly assess any possible investments that will not fall into our framework.

What trends are emerging in the private equity and financial services sectors as we move forward? How is NIO Capital preparing to navigate these changes?

In South Africa, there have been some regulatory changes where the regulators will implement Regulation 28 of the Pension Funds Act, which imposes limits on infrastructure investments, and the investments must be reported to the Financial Sector Conduct Authority. Direct infrastructure exposure across all asset categories cannot exceed 45% of a fund’s total assets, previously 30%. New limitations on direct asset infrastructure exposure across all categories of a fund’s total assets.

South African laws are evolving to ensure we know exactly who we’re dealing with in each transaction. FICA(Financial Intelligence Centre Act) now requires fund managers to conduct deeper due diligence on all beneficial owners and disclosure, which could include due diligence on the ultimate beneficial owners of the investors in a fund and transactions.

About NIO Capital South Africa and Mauritius:

NIO Capital is a South African and Mauritian based Private Equity firm focusing on providing private equity investments to a broad spectrum of companies across the

• Energy & Mining,
• Food and Water Security,
• MedTech,
• FinTech, and
• Property sectors. (Development and listed entities)

NIO Capital provides corporate finance services and serves as advisors to various key players from different industries, and prides itself as a strong company that focus on often overlooked opportunities within the financial services sector, such as industry consolidation structures, Balance sheet optimisation, and business model strategies, all of which require proficiency and the right people as per requirement.

Our current network provides us with an ever-increasing ability to assess, formulate and manage business strategies, particularly customised for the needs of each individual client.

NIO Capital is an investment and management company focusing on our family office and the expansion of our investments globally.

NIO Capital builds long-term relationships and mutually beneficial partnerships with our progressive and collaborative corporate culture. Sustainability is deeply ingrained in everything we do. Our experienced team manages many important relationships with leading clients, corporates, businesses, and Banks. Associating with the best employees, partners, and suppliers ensures everyone benefits together.

Our funds are structured into the following categories:

1. Renewable Energy and Mining - Hydrogen and electricity generation.
2. Food Security and Water Security:
3. Information Technology -Artificial Intelligence, MedTech and Fintech, Quantum Computing.
4. Financial Services (Pre and Post Investments cycle) - Listings, Debt Raising, Securitisation, Fund of funds investing

NIO is a truly private equity firm at its heart.

NIO has a number of investments in the non-listed as well as the listed space in various exchanges.

Listed Investments with strategic intent.

With the positions we hold in other listed entities, there is always a strategic intent. Most of our industry consolidations are based on the legacy assets of a first-generation entrepreneur. NIO found a way to create a long-awaited exit for these owners that had limited succession plans in place for the business.

Coal to Renewable (CTR)

During our last 8 years of investments, the group has always envisaged the switch to renewable and alternative energy sources. Coal remains the most available energy source around for the development and the fast population growing countries. Renewable projects’ costs have been reduced dramatically but are dependent on historic distribution networks that are, in some cases, old and unreliable.

Renewable Investments Strategy in Africa:

Since 2015 our various private equity funds have actively participated in the funding and development of various renewable energy projects. South Africa is currently in a big energy crisis that revolves around the lack of generation capacity due to a lack of maintenance. Fueled by internal political issues, businesses and the public have started resolving the issue themselves.

MedTech and Information Technology: 

Our long-term strategy is to focus on the constantly growing advancement in medical technology and the overall application of that in our business models for sustainable growth and profit. The result of these rapid changes is its effect on the mortality extension.

A number of the world’s biggest private equity firms, including Silver Lake Partners LP, Thoma Bravo LP and Blackstone Group Inc, have seen their stakes in software firms greatly devalued following a wide-reaching hack on software provider SolarWinds Corp.

SolarWinds stock has slid 20.8% from last week’s close after reporting on Sunday that suspected Russian hackers had inserted malicious code into software used by the company to carry out updates, allowing the operatives to access sensitive systems undetected.

The “Sunburst” operation, remarkable for its size and sophistication, constitutes the biggest cyberattack against the US government in more than five years. Around 300,000 companies and agencies use systems provided by SolarWinds, with around 18,000 believed to have used compromised versions of its software since the attack began in March.

SolarWinds’ customers include most US Fortune 500 companies, all of the top 10 US telecom providers, the US military and various other government branches. The UK government and the NHS are also listed among the company’s clients.

Silver Lakes holds a stake of nearly 40% in SilverWinds. Following the plunge in the value of its shares, this stake is now worth $2.3 billion, and Thoma Bravo’s 33% stake is now worth $1.9 billion.

Blackstone’s $400 million November donation in cybersecurity firm FireEye Inc also suffered from the hack, as the company’s shares fell 11% after hackers stole a collection of hacking tools used to test clients’ cyber defences. FireEye, which has contracts across the US national security sector and with its allies, uncovered the SolarWinds breach while probing this attack.

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Regulatory filings showed that, following the theft of its tools, FireEye amended its deal with Blackstone and co-investor ClearSky to make it more favourable to the private equity companies. The firm opted to convert the FireEye-preferred shares that the investors stood to receive to common stock at $17.25 rather than the initially agreed $18.

FireEye shares traded at around $13.58 on Tuesday afternoon.

Takeda Pharmaceutical Company, Japan’s largest pharmaceuticals firm, announced on Monday that it would sell its Japan-side consumer healthcare business to US private equity company Blackstone Group Limited.

Takeda has been selling its over-the-counter assets in several nations in a bid to refocus its business towards the development of new drugs and reducing the debt it acquired from its $59 billion purchase of Shire Plc in 2019.

During an online briefing, Takeda chief executive Christophe Weber said that the company had decided to sell its Japanese consumer business unit due to the difficulty of continuing to invest in OTC businesses while keeping this new focus.

“My responsibility is to make sure that we don’t destroy value (for OTC businesses) but create value, and to create value we need to grow businesses and it’s not good to keep business and not invest sufficiently into that,” the CEO said.

Takeda stated that the proceeds from the sale of Takeda Consumer Healthcare Company would add 108 billion yen to its net profit, and that it expected the transaction to close by 31 March.

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Blackstone outbid competition from Japanese pharmaceutical group Taisho and other private equity companies to acquire TCHC. In a statement, the company said that the purchase would be its second acquisition in Japan after acquiring Ayumi Pharmaceutical Corp in a $1 billion deal in March 2019.

This new purchase will give Blackstone control over TCHC’s Alinamin line of energy drinks and vitamin supplements, and its Benza Block cold medicine.

The special purpose acquisition company also listed shared upon completion of the transaction, the resulting company will continue to operate as Paya. It will be listed using its new symbol PAYA on NASDAQ. The combined company, Paya, now has an implied enterprise value of roughly $1.3 billion as a result of the transaction.

Paya CEO Jeff Hack tweeted that the company is excited about the new partnership and hopes it would accelerate their journey of becoming a public company. He also thanked the company’s existing majority equity holder, GTCR for their continued support and investment.

He added that Paya has an impressive track record of “creating differentiated value” for its software integration partners along with their end customers. Hack also expressed his vision for the future of Paya as a publicly traded company, saying that they will continue investing in product innovation, while also focusing on providing their software partners with excellent support. He added that they company will continue to work towards having access to the required capital for more strategic acquisitions.

Paya management team to continue handling growth strategy

The current management team of Paya, led by CEO Jeff Hack, will continue to be in charge of handling and executing growth strategy of the combined company. GTCR, a leading private equity firm, will continue to be the largest stockholder of the company.

GTCR is no new name in the fintech industry. In fact, it is a long-time investor in the industry known for its successful support of fast-growing finance and payments public companies such as Syniverse, VeriFone, and Transaction Network Services.

The current management team of Paya, led by CEO Jeff Hack, will continue to be in charge of handling and executing growth strategy of the combined company.

Commenting on the merger, Managing Director of GTCR, Collin Roche said that the agreement between Fin Tech III and Paya shows the effectiveness of their Leaders Strategy™ approach and its ability to transform various businesses that belong to industries that GTCR knows as well as the payments industry.

They also expressed their excitement to provide continued support to Paya in "this next chapter of growth," adding that the management team has made calculated investments in technology and talent to build a unique, effective, and scalable integrated payments platform in attractive end markets.

Paya shows a hopeful future in trading

Meanwhile, Paya is no newcomer either. It already has more than 100,000 customers and processes a total of more than $30 billion. It can even deliver vertically-tailored payments solutions to its business customers through Paya Connect, an ACH platform and proprietary card. Paya partners with well-known software providers to deliver these solutions to their business customers, many of which are in markets like healthcare, education, non-profit and faith-based, B2B goods and services, and more.

One of Paya's major appeals is that it boasts a seasoned management team with years of industry experience. The team, led by CEO Jeff Hack, has a combined experience of more than 100 years in the payments industry and they have worked with major companies such as PayPal, JPMorgan Chase, Vantiv, and First Data.

Additonally, Paya also has an attractive financial profile. Its impressive KPIs have set industry standards, and includes an average ticket of more than $200. Besides, the company has a proven track record of high cash flow generation supported by a strong operating leverage and historical growth.

Looking at these impressive highlights, Paya shows a promising future in trading as a public traded company.

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Implications of the transaction

Apart from the implied enterprise value of approximately $1.3 billion for the combined company, the transaction has several other implications. Fin Tech III’s cash in trust will find the cash component of the consideration, along with a private placement from a number of organizations.

The balance of the consideration will include shares of common stock in the combined company. Suppose stock price targets – as specified in the definitive merger agreement – are met. In that case, it is likely that current equity holders in Paya will receive an earnout of additional shares of common stock. By rolling over a large amount of equity into the combined company, the equity holders, along with the management team and GTCR, will continue to be the largest stock holders.

The merger is expected to be completed in the fourth quarter of this year. Approvals from FinTech III stockholder as well as regulatory bodies are still pending as of now.

This transaction is likely to have a significant impact in the fintech trading market. While trading, it is important for investors to use only trusted and reliable trading platforms so they have access to reliable knowledge and resources.

Sources:

https://www.finextra.com/pressarticle/83575/paya-acquired-by-fintech-iii

https://www.businesswire.com/news/home/20200803005351/en/Paya-FinTech-III-Announce-Merger-Agreement

The first 100 days for a private equity (PE) firm is typically the culmination of an intense planning process. A PE firm – if it has chosen its acquisition wisely – has a five-to-seven-year plan where new metrics are emphasised, synergy savings are prioritised, and operational improvements begin to materialise.

PE firm business acumen often identifies suboptimal operations, limited market channels, misallocated capital and stymied growth opportunities. The investment thesis of PE firms touches on all the standard objectives.

So where is the unrecognised blind spot in the first 100-day strategic plan?

PE firms have the market power to influence and reduce healthcare costs at portfolio companies, however, the vast majority of firms haven’t exercised this power. Generally speaking, PE firms and businesses have abdicated accountability to insurers, government and healthcare supply chain providers. This has resulted in a never-ending upward pricing increase at four times the rate of inflation. Essentially, portfolio companies have been the financiers of the inflated stock returns of healthcare industry providers like PBMs, hospitals, surgery centres and medical device companies.

The net impact of unmanaged healthcare is the largest personal and corporate confiscatory tax of the last 20 years in America.

Lack says he likes to ask, "What’s the smallest action you can take to lower the healthcare budget?"

1. Are you applying the same strategic rigour to your portfolio healthcare strategy as you do the rest of the business?
2. Is the healthcare investment a stated PE or C-Suite priority?
3. Can the recommended healthcare strategy control costs measurably and repeatedly lower the frequency and severity of claims?

Lack explains, the financial engineering of healthcare risk to reduce cost and improve the portfolio balance sheet sounds about as exciting as driveway gravel, but once the PE firm can see the economics it gets very interesting very quickly.

He continues: “As good as this is for our clients, including the largest privately held insurance agency in America and the fifth-largest sports brand in the world, it’s even better for private equity portfolios.” He walks the reader through his thinking.

“How are other organisations able to spin off risk and avoid the inevitable adverse risk creep?

“Too often healthcare managers at portfolio companies are unable to quell the uncontrollable upward spiral of claims cost. Consequently, process and administration become the proxy for quality healthcare, and managers become trapped in a quest to find the next Best Practice, but they inevitably create less and less value.

"I love unrecognised stranded costs," says Craig Lack.  “Today, there is a case to be made that risk diversification is necessary, simply to meet basic operational improvement objectives.”

“But what if a PE firm could stop trading lost profits, spent negligently on healthcare claims, for enterprise value growth?”

Last year Lack notes that a PE-owned client increased enterprise value growth by transferring risk in a way that no incumbents or vendors were replaced, no disruption or administrative burden was created, and there was zero employee noise.

On the contrary, participants love their experience, and HR supports expanding the engagement.  More importantly, Catilize Health, through its SIHRA program, measurably and predictably increased the annually recurring revenue and EBITDA of its client, which improved enterprise value.

 TODAY’S NEWS

Healthcare is a constantly changing environment – the technology, the cost of treatment, the reimbursement rules and government regulations. That’s what makes it so complex.

We all know this. The most common trends are easy to recognise – they’re on the front page every day:

• The cost of medical care is increasing every year.
• The healthcare budget is now typically the second-largest operating expense ahead of IT spending. PE firms see this in their portfolio companies.
• And now, healthcare is the second-largest expense for employees and their families behind only their mortgage or rent expense.

“We all know the cost of healthcare is going to continue to be painful for companies and families. Because of our experience managing hundreds of thousands of claims for tens of thousands of employees, we have developed unique insights,” says Lack. These include:

1. To reduce healthcare costs, you actually have to increase benefits. It’s not linear as many think: i.e., reducing benefits translates into reducing costs. The reality is there’s an inverse relationship between cost and benefits. Most executives are shocked to look behind the curtain and see that quality and cost are inversely related.
2. 1% of employees incur 25% of ALL claims – and there’s a name for them. They are called Super Utilisers and are the cornerstone of our risk management solution.

If you can do something about your Super Utilisers then you can:

• Completely change the economics of the healthcare budgets in your portfolio.
• Arbitrage the cost of health claims by double digits (spinning off the Super Utiliser risk). A typical self-funded company books an unfunded liability of $100K-$1M per member and SIHRA lowers that risk to less than $5K.

WHY IT’S HARD

There are obviously many options available with healthcare consultants and brokers.

But it’s hard to really know if you’re exploiting all the opportunities available because the industry sets up so many roadblocks.

“But what if a PE firm could stop trading lost profits, spent negligently on healthcare claims, for enterprise value growth?”

• The healthcare supply chain dictates terms to companies. No one knows the cost of anything until they get a bill 30 days later!
• The insurance companies prefer to sell a black box, hide their margins and they aren’t transparent. They’re set up to look like a bond but in some years receive stock-type returns on your premiums. Most companies manage healthcare like a gambling addict – they might accidentally win once in a while, but they fully expect to lose every year!
• Industry Best Practices have mostly failed to produce measurable savings for years.

Additionally, one has to include the roadblocks established by the companies themselves:

• The culture of many companies rewards status quo and creates a fear of change.
• Innovation is perceived as risky so the path of least resistance is the rule.
• While operational improvements are routinely implemented – healthcare is ignored.

THE SOLUTION

Catilize Health’s SIHRA technology transforms uncertain large liabilities into small fixed expenses by driving employee engagement into a medical plan that arbitrages pricing asymmetries.  As a result, participants receive 100% coverage, claim liabilities are capped, and enterprise value grows substantially.

SIHRA is bolted next to your existing health plans without the need for changing any vendors, consultants or health plans. It enables companies to pivot healthcare from an operating expense into an asset that generates free cash flow and earnings.

Lack paints a typical picture to better visualise SIHRA:

• An average self-funded 5,000-employee company will spend $60M on its healthcare.
• The company will purchase stop-loss reinsurance protection of about $700K per member. This means the company has an unfunded maximum liability of $700K for every member (for example, 5,000 employees = 10K+ members).
• The SIHRA solution shows the company how to arbitrage that risk from $700K per member down to <$5K per member.
• A family of four translates to $2.8M in unfunded liability and the SIHRA reduces the unfunded liability to <$20K for the family.

HOW SIHRA WORKS

The SIHRA works by leveraging behavioural economics. Science has proven that human beings are risk-averse and will act in their own financial self-interest.

Free cash flow is created by attracting a disproportionate number of high claimants (the Super Utilisers) to enrol (spin-out) in alternate group coverage by offering them 100% medical coverage with zero out-of-pocket expenses. They voluntarily elect coverage.

When employees save thousands of dollars in out-of-pocket expenses after enrolling in the SIHRA, they let all their coworkers know of their savings. Consequently, enrollment grows organically every year, which produces larger savings and higher enterprise value.

It works because each of the portfolio company’s medical claims is dispersed in the same way:
• 1% of members incur 25% of ALL Claims
• 5% incur 50%
• 20% incur 80%
• 30% incur 93%

As a result, the most ill employees and their families will jump at the chance to avoid losing thousands of dollars in out-of-pocket expenses that they currently spend – because they are Super Utilisers!

They avoid losing money by enrolling in alternate group health plans, which could include a participant with a second job, parent’s coverage or spouse’s group medical plans.

When employees and their families receive richer benefits by enrolling in 100% medical coverage, claims are eliminated, cash flow is generated and the balance sheet improves.

VALUE PROPOSITION

The SIHRA is accretive to earnings, which gives you tremendous ROIC.

• Results are cash flow positive in the first 30 days, with measurable, predictable and certain results produced.
• Our compensation is 100% performance-based.
• We earn a gain share of 30%.
• Multiple billion-dollar stop-loss carriers offer premium discounts.

Maybe even more importantly, the PE firm reduces its risk. PE firms that utilise first-mover advantage with SIHRA will be able to see unrecognised risk and liberate trapped capital from overfunded defined-benefit health and welfare plans. For PE firm clients, suboptimal risk management and financial infidelity caused by taking on too much adverse selection can be improved and reformed. Healthcare can be a competitive advantage that can act as a handcuff for talent retention and a magnet for recruiting.

The indirect benefits that Catilize Health delivers in part impacts everything that matters in a company, whether it’s human capital-directed or financial results-focused.

How often is a PE firm reviewing a profit opportunity that is tested and proven with financial results that are irrefutable? Replicating the same performance and outcomes is only incumbent upon taking action. The blueprint is defined, and the full potential can be modelled.

By harnessing the Catilize Health SIHRA technology, healthcare can be transformed from "a tapeworm on corporate America" as Warren Buffett stated, into a competitive advantage that is accretive to the bottom line and increases enterprise value. All that is left for PE firms to ask is why they haven't applied the disciplined SIHRA strategy as a profit lever because the status quo is a perennial loser of profits and enterprise value.

Before you purchase a company, picture being able to see around all corners.

You could know in advance how much exploitable liability is currently trapped inside the target company’s healthcare budget.

Lack says: “I can’t imagine that wouldn’t be on everyone’s to-do list.”

CATILIZE HEALTH SIHRA PROGRAM AT WORK

Last year, a health insurance company implemented the Catilize Health SIHRA program and offered it to its workforce. After experiencing the program’s positive fiscal impact, it has now created a retail health plan that includes a multi-year rate guarantee when the SIHRA is designed and communicated per specifications.

In addition, many of the largest publicly traded, privately held and PE-owned insurance agencies are contracted with Catilize Health. The largest privately-held insurance agency in the United States utilises the SIHRA program for its 11,000-plus employees, and its private-equity-backed owners are experiencing a higher ROIC, lower costs and higher enterprise value.

Now, the question is whether a PE firm’s investment thesis can afford to be laissez-faire with passively "managed" healthcare at their portfolio companies knowing that there are tens and hundreds of millions of dollars of unrealised enterprise value trapped as stranded costs.

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About Craig Lack

Craig Lack advises financial executives on increasing Enterprise Value. He consults public and private companies, PE Firms and independent consultants on how to transfer risk. He speaks at national conferences, business coalitions on health and to C-Suite groups. Craig has appeared in Forbes, Inc., CEO Today, Yahoo Finance, Success, Fast Company, and featured on CBS, ABC, CW and FOX.

Private equity has gotten a bad rap throughout the years, thanks in part to the popular image of an uncaring operator who buys and sells companies without concern. For a truly successful modern PE company that accomplishes high multiples through attention and care, that couldn’t be further from the truth.

In practice, a great private equity fund is one that meets investor needs with a full appreciation and understanding of what makes these companies tick. Portfolio company CEOs make a choice. You can be remote and uncaring, buying and selling without true involvement in the day-to-day and hope your changes work. Or you can roll up your sleeves and do the work necessary to create real benefits. That’s more than opening up the hood and taking a look around; it’s a deep dive into a portfolio company’s everyday workings. Francesco Liistro, Chief Enhancements Officer at KL Industries, says that it’s a process known as operational intervention.

A full investment

It’s not a secret, I’m happy to share it with anyone who cares to listen. The transformative ability of these methods doesn’t lie in some arcane formula; it only depends on your willingness to implement it completely. That’s where the difference lies.

Private equity investment managers, take note: you will never add value without fully investing yourself in the task. Operational intervention, as its essence, starts with learning by fully weaving your work into the business you’re intervening in. You wouldn’t drive a car by sitting in the backseat! Only by first performing the groundwork of assessment followed by insightful changes can you deliver the value that your acquisition promised.

Operational intervention, as its essence, starts with learning by fully weaving your work into the business you’re intervening in.

The big obstacle to this work, for many in the field, is the sheer effort and exertion that it requires. Things weren’t always this way. Traditionally, underperforming companies have been served by a temporary consultant who flies home on the weekends, staying only until their initial set of goals has been met. Today’s environment simply doesn’t accommodate that style any more.

Implementation is now a 360-degree process. Successful private equity operations need a holistic assessment of what’s going right and what needs work, and that can only be accomplished by getting down into the details. That includes knowing not only what the company needs, but who it needs, and installing a new CEO who can guide them to greater heights of profitability and value.

Boots on the ground

Often, a strong portfolio company CEO is not sufficient on their own: the company being intervened in lacks professionals experienced in making the necessary changes, and that needs to change...fast. That is why smart operational PE funds build a highly effective team of specialised professionals around their Portfolio Company CEOs, people specialised in different fundamental fields. It’s what I like to call the task force.

While I’m doing the heavy lifting as CEO, the task force attacks the details. Made up of experts in the niche the portfolio company in question inhabits, their experience and knowledge makes them crucial to the job. Talented task forces are the best weapon in my arsenal: precise, powerful, and thorough.

Frame of mind

There’s a certain attitude that underlies all of this as well. A driving force that ensures we deliver the best results. Process alone won’t get great results--it also takes the right mindset.

A trend I’ve seen that’s truly disconcerting is a shyness among PE funds when dealing with portfolio companies. They’re more concerned about stepping on toes than with doing what they’re expected to do: add value. They’ll call themselves a “sparring partner” to the management team rather than take on the full responsibility of rejuvenating an underperforming company. Worse yet, some will stake out a spot on the board of directors, one voice among several, and feel as though their work is done.

Often, a strong portfolio company CEO is not sufficient on their own: the company being intervened in lacks professionals experienced in making the necessary changes, and that needs to change...fast.

Half-measures don’t work for creating value in a portfolio company. It’s not rude to step in and make your opinions heard--that’s what your investors are paying you for. They say that fortune favors the bold, and finding a fortune in private equity comes from a similar boldness: one that’s backed up by all the groundwork you’ve done.

Another misconception is that operational intervention is only for struggling companies. In truth, the work pioneered by turnaround specialists has generated a streamlining process that can work for any company seeking improvement or growth.

In the end, successfully positioning a portfolio company to perform at its best requires you to excel as well. With the proper preparation and research, followed by thoughtful implementation, operational intervention can position PE funds at any level for their next big jump.

About Francesco Liistro

Francesco Liistro is Managing Partner at KL Industries, a leading performance improvement consulting firm based in Switzerland. An industry leader, Francesco Liistro collaborates with private equity funds, venture capital, and family offices to reimagine and transform underperforming portfolio companies.

For more information, go to https://www.linkedin.com/in/francescoliistro/ or email francesco@klindustries.ch

Headlines have raised fears in recent months that robots threaten many of our livelihoods. However, Jan Hoffmeister from Drooms says that those in the private equity (PE) industry should instead be encouraged by how Artificial Intelligence (AI) technology can give them an edge in a competitive marketplace.

AI technology cannot replace human thinking in relation to strategy and business planning, which are fundamental to PE. But it is an impressive tool when it is correctly incorporated into the more process-driven functions of PE firms, increasing the power to collect, process and distribute information to the right parties with much greater speed and accuracy.

The need to stand out is imperative in the highly competitive PE market. Analysis by EY¹ shows that while the industry has made a strong recovery after the crash of 2008, there is also a lot of ‘dry powder’ sitting in the wings because of intense competition for deals.

Total PE commitments globally stood at US$530.7 billion in 2016, which was close to the US$616.7 billion pledged in 2007. However, in 2017, only US$440 billion of transactions took place versus US$748.4 billion in 2007. In terms of dry powder, there was US$525 billion sitting without investments in 2016.

The key issue is that the right investment targets with appropriate valuations are hard to find. Offering a solution to managing the deal-making process helps a PE firm stand out amid intense competition. Using a virtual data room (VDR), which leverages AI technology, makes a firm best in class, whether it is used for a one-off transaction or to create value in assets over their entire life cycles.

Successful PE firms are thorough in their due diligence, nimble and open-minded to pinpoint the right opportunities and disciplined about formulating the right investment philosophies.

There are two key areas in which a VDR is useful for PE firms, particularly if it is used during the ‘hold’ phase of an asset. The first is consistency, in that documents can be updated regularly, giving the vendor full control over data, sourcing investment targets and achieving correct valuations. The second is responsiveness – documents are always ready, so assets can be bought or sold whenever required.

Given that the intention of PE firms is always to sell an asset, it is especially relevant for them to establish a ‘life cycle’ VDR that can be used to manage a company throughout the period of ownership, from purchase, through management and on to divestment.

A VDR connects authorised users, including those inside a company and their external stakeholders, digitally and in a secure environment with real-time access to all relevant documentation.

A VDR always makes documents relevant to a transaction available to authorised parties and helps ensure that they are up-to-date. All data is stored securely online on a server platform and is always accessible to both internal and external parties, depending on their individual permission levels.

Creating a database in which documents can be updated consistently gives asset owners full control and the ability to react to the latest market conditions, bringing assets to market quickly when the conditions are right, sometimes at short notice.

One of the strengths of the Drooms NXG VDR is its Findings Manager function. This improves the vendor due diligence both prior and during the sales process. It allows for the automatic pre-selection of documents and helps in the assessment of potential risks and opportunities within a transaction. This yields greater control, instills confidence in potential buyers and cuts disruption to existing business.

Those PE firms involved in cross-border deals will find the Drooms transactional room particularly useful. It includes a tool that translates documents in real-time, ensuring risk assessments are maintained in a timely fashion throughout the process.

Essential elements

The integrity of documentation is paramount for PE firms. When deals are going through, unclear, incomplete or erroneous documents can cause all manner of problems, including sales falling through. Documentation must provide an accurate assessment of the value of an asset.

For clarity and transparency, a VDR must also have a stringent and standardised index structure for all assets within a portfolio. All an asset’s documentation should be organised in the same manner, allowing quick access to relevant content for the purposes of comparison. Long-term value can be created in assets if they are encapsulated by standardised and sustainable data – and life cycle data rooms are the optimum tool for this purpose.

The practicalities

In practice, careful planning is essential to manage a life cycle VDR successfully. This starts with getting an accurate snapshot of a project’s current progress using key metrics such as available (and missing) documents.

The time frames, processes and the responsibilities of all relevant parties should be defined, and their commitment secured to the proposed solutions, including any changes to management processes.

All the relevant documents must then be collated and, if necessary, digitised before being uploaded to the VDR. Finally, the VDR must be regularly monitored and maintained, updating and adding documents as required.

Most powerful tool in the box

PE firms that wish to manage a market currently characterised by dry powder, high valuation and enhanced competition need to adopt beneficial technologies. A VDR adds value at all the stages of an asset’s lifecycle, including buying, holding and selling, making the whole process much smoother. The value added in terms of making better deals, improving operational efficiency and enhancing the transparency increasingly demanded by stakeholders makes a VDR one of the most powerful tools at a PE firm’s disposal.

¹Source: EY, Global PE Watch, 2017

To hear about Nucleus’ asset based lending facility, Finance Monthly speaks to Corporate Sales Director Ian Bath, who joined the company in July last year and has been working on developing their mid-market ABL business since then.

What is the Nucleus approach when providing asset based lending (ABL) to companies?

At Nucleus, our approach always starts with getting a good understanding of the business we are dealing with, the people behind it, and what they are looking to achieve. With the benefit of this understanding we can start to tailor a package of facilities that not only covers the anticipated needs, but the inevitable bumps along the road that every business experiences as well.

The Nucleus ABL offering includes not only invoice finance, but extends to stock, plant and machinery, and property as well. We have no hard and fast rules around the mix of assets that comprise the borrowing base, and will often fund assets that others may exclude, making our solutions truly flexible.

A particular specialism within Nucleus is funding contractors who operate within the construction sector.

What are the advantages of asset based lending for companies?

Asset based lending frequently enables companies with a strong asset base to get more leverage out of their Balance Sheet than traditional senior debt can provide. It is particularly appropriate for businesses going through a period of change - when they need to invest in growth. Cases where EBITDA is still modest, but the outlook shows an improving trend would be a good example of this. In these situations, it is difficult for a senior debt provider to get comfortable with lending against next years’ income in the same way as a secured lender can. Additionally, ABL facilities typically have fewer covenants than traditional types of lending, making the availability and predictability of funding more stable in times of uncertainty - as we are experiencing at the moment.

Can you talk us through some of the recent trends that Nucleus has observed in the ABL space?

The number of players operating in the space has increased significantly in recent years. Whilst Nucleus has traditionally focused on SME businesses, we have seen an increasing demand in the Mid-Market, and increased our funding threshold to £50 million in 2017. This is a factor of the so-called Alternative Lenders focusing on smaller opportunities and the American Banks hunting out sizeable cross border deals. Increasingly ABL within the High Street banks is working in conjunction with their leveraged finance teams and the basis on which deals are structured is heavily influenced by them, rather than more traditional ABL values.

We have also seen ABL and Private Equity working much closer together as their understanding of our offering, and the value we can bring to a transaction, has improved.

What are Nucleus’ goals for the future of your ABL practice?

We are committed to continuing our support for businesses in a range of industries and sizes, with our flexible offering of products. In 2017, we doubled the total amount that we have lent to businesses to £700m and this year, our ABL product will continue to play a significant role in Nucleus’ growth plan over the next 12 months and beyond.

CASE STUDY:

Key Stats:

Type:  Invoice Finance

Borrowed: £8m

Industry: Manufacturing

EXPERT TOOLING AUTOMOTIVE LTD.

Expert Tooling Automotive Ltd. came to Nucleus because they needed to replace their existing ID facility whilst retaining the same pre-payment and funding limit.

Established in 1972, Expert Tooling Automation Ltd. is a highly respected supplier and manufacturer for the British automotive industry. Expert is the largest Automation System builder in the UK, supplying specialist assembly line components to clients including Jaguar Land Rover, Aston Martin and Nissan.

The business has gone from strength to strength in recent years, increasing turnover by five times in under seven years. Previously funded by a bank, they needed to replace their existing Invoice

Discounting facility when their provider pulled back funding. Although still retaining a solid balance sheet and order book, after several overseas contracts ran into difficulty. Expert were asked to seek alternatives.

After consulting their broker, Expert was recommended to several finance providers. The deal was complex, with a high concentration needed for one of the debtors and it required a specialist understanding of the industry to structure the facility appropriately and support the client’s operations. Nucleus was the only funder who were able to fully meet their requirements and was able to match the previous provision and deliver the bespoke £8m Invoice Discounting facility that Expert needed.

Nucleus team spends time getting to know all the businesses that the company funds and this client chose them because of the flexibility and the direct access to decision makers that they offer.

Angelo Luciano, CEO: “Nucleus took the time to understand our business and the challenges around the nature of our project related trading. Nucleus offered a flexible solution that allows us to have other sources of funding where appropriate.”

Chirag Shah, CEO, Nucleus: “It’s personally rewarding to support businesses that represent the heartland of the British manufacturing and construction industry, a profitable sector that contributes to job creation and driving the UK economy.”

Contact details:

Email: contact@nucleus-cf.co.uk

Website: https://nucleuscommercialfinance.com/

Ramphastos Investments is a venture capital and private equity firm focused on driving top-line growth in enterprises in all stages of their evolution: from start-ups to scale-ups to high-growth medium-sized companies and mature enterprises.

The firm was founded in 1994 by Marcel Boekhoorn, who left a career in accountancy at Deloitte after becoming the Netherlands’ youngest Partner to pursue his passion for entrepreneurship. Within a few years, Marcel had grown the firm’s portfolio and invested capital exponentially after realising spectacular returns through several high-profile exits. In this period, he also laid the foundations for the approach toward building businesses that the firm pursues today: a focus on driving growth on the revenue side of the equation through buy-and-build strategies, marketplace innovation, internationalisation, management empowerment and strategic partnerships.

Today, Marcel is joined by a team of seven partners who share his passion for and hands-on approach to business building as well as his upbeat, solutions-focused and status quo-challenging mindset. As founders, builders, operators and investors in businesses of all sizes and in all phases in their evolution across multiple sectors and geographies, Ramphastos’ partners have successfully turned around businesses, created and sold start-ups, launched IPOs and completed de-listings, achieving outsized average returns on investment throughout the firm’s growth.

The firm currently holds interests in more than 20 companies with a cumulative revenue above 3.5€ billion and more than 8,000 people employed across a range of sectors from financial services, gaming, new materials and advanced manufacturing and energy and across all continents. Ramphastos is focused primarily on acquiring majority stakes in companies that meet three criteria: a unique competitive position (through a patent, brand or operational efficiency), strong intrinsic growth potential and favorable underlying trends in the industry or marketplace. As an investor of its own capital, the firm has the financial independence and appetite to take on complex transactions and special situations.

This month, Finance Monthly had the privilege to catch up with Marcel Boekhoorn and hear about the exciting journey that founding and running Ramphastos Investments has been to date.

What was setting up your own investment company in the Netherlands back in 1994 like? What were some of the hurdles that you were faced with?

When I left my job as a Partner and M&A Expert at Deloitte & Touche, I had no money of my own to invest, so my first step was to set up shop as an independent M&A consultant. That work brought in enough money, and when one of my clients was unable to pay for my invoices, I decided to take a stake in his business. I made just about all the mistakes you can make, starting with taking a minority stake and having no control over the direction of the business. I also witnessed first- hand that a Founder’s entrepreneurial creativity doesn’t necessarily translate into day-to-daymanagement or leadership skills.

Within eight months, the company had folded, and I was on the verge of bankruptcy. But poverty breeds creativity, and within a year, I had earned enough to try it again, this time taking control of a struggling wood box maker and turning it around by focusing production on cigar boxes. We produced boxes for Davidoff, Tabacalera and other global brands, and I sold my shares for a good profit – enough to branch out into more investments.

My strategy from the start was to focus on unconventional companies that no one was interested in, like small wheelbarrow or spray can manufacturers, and to build them into market leaders through buy-and-build strategies. By realising significantly higher margins as market leaders through premium pricing strategies, these companies were able to accelerate outsized growth in their sectors. By purchasing them when they were small and selling them quickly as market leaders, I was able to realise outsized returns in the process.

Now, almost 25 years later, we’ve moved on to larger, different and more complex investments, but our fundamental emphasis on top-line growth, as well as our preference for taking a majority stake in our investments and our interest in companies, markets or complex transactions and special situations that others shy away from, are still our main priorities.

A key component of any successful PE investment is to turn the business around; what are the considerations in terms of operational integration? What are the typical challenges you face?

When we consider investing in a business to turn it around, we look to see how we can add value on the revenue side of the equation – through a buy- and-build strategy or by challenging the status quo with the introduction of a new channel strategy, internationalisation, or a new product portfolio or pricing strategy. We have seen that it’s on this side of the equation that we can make the biggest difference and add the most value. It’s also where we’re most at home. We are entrepreneurs and business builders first and foremost.

This sets apart from much of the private equity world, with its emphasis on the cost side of the business. Don’t get me wrong: all of the revenue- driving strategies I just mentioned will only succeed if the organisation and operations are structured effectively to deliver on them. And any successful turnaround includes robust cost control and simplified, streamlined operations. Getting that right will always be part of our turnaround strategy, but we are fundamentally more about catalysing growth through entrepreneurial innovation and management support on the revenue side rather than driving profit by slashing on the cost side of the equation.

A hallmark of our approach to turning businesses around is to focus on company leadership. The company’s management and its employees – the people – are the ones who will make or break the business. Our work starts at the top, getting the leadership bought into and aligned on the new direction, ensuring that they embrace the same vision of the future, the same sense of who we are today and where we are headed. We make it a point to be there for leadership teams and help them work through such processes. We’re hands-on builders, and this is a role we love to play. Getting a turnaround right throughout the organisation – not just among leadership’s direct reports but company-wide – hinges on consistent, well-aligned communication. We find time and again that executing consistent communication – from instilling an understanding of strategy to fostering a growth-focused culture among employees. This is one of the most important operational KPIs for a successful turnaround.

You ask about typical challenges. Well, for starters, most people aren’t hardwired for change, and if the change isn’t something that they introduced themselves, it scares them. They don’t like it – until they see that it works and benefits them, of course. Take the example of introducing a channel strategy to move a retail business entirely online – or vice-versa. We’ve done both in different sectors, geographies and cultures, and we have found that three things help mitigate resistance and galvanise employees to deliver on the new strategy: first, a clear and consistent communication about the strategy and its benefits, second, creating and showing progress against a roadmap with compelling short- and mid-term milestones and third, cultivating a culture of listening and dialogue among employees.

What is the state of the market in relation to venture capital right now? What challenges are faced by businesses looking for funding?

Looking at the markets for venture capital and private equity, we see that increased competition has driven up valuation multiples up consistently.

From 2009 to today, sustained low interest rates have made debt cheap and have driven investors’ money toward VC and PE in their search for higher returns. Strategic buyers with strong balance sheets and big cash reserves are competing with one another, driving prices up.

In spite of this overall pattern, there are plenty of businesses who struggle to find funding. In the VC space in particular, we see that geography plays a role. If you’re a start-up based in the States looking for, say, two-to-five-million dollars, you’ll be well served by the market. If you’re a European company looking for the same investment in

Europe, you’ll struggle. The VC market is far less developed than the market in the States, with investment concentrated around a handful of potential unicorns.

At Ramphastos, we have always focused as much as we can on companies in underserved markets and in investments that others avoid. Conversely, we’ve always stayed as far away as we can from competition with other investors. Our point of view is that if you have to compete in an auction with

20 or 25 other players, then you’ll always end up paying too much and struggle to reach your target IRR.

We build businesses with our own capital, and in doing so, we pursue the high-risk, high-return opportunities that others avoid. We’re currently focused on turning around larger enterprises that face complex challenges. Unlike typical private equity firms that are happy with 25 or 30% IRRs, we are looking for driving significantly higher returns. So far, our approach – which plays to our strengths as creative thinkers and hands-on business builders – has paid off. In our 24 years as a firm, we’ve realised average multiples of money invested above ten.

How are most of your investments structured? To what level do you, as the investor, want a say in the day-to-day running of the business?

We do the majority of our investments on our own.

We invest our own capital and value our financial independence. This keeps us flexible and agile as investors. We usually take majority stakes to allow us to do what we do best – roll up our sleeves to help company leadership hands-on as they build their business. As founders, builders and leaders of businesses of all sizes and in all phases in their evolution, our partners have first-hand experience with just about anything you can encounter as an entrepreneur. We usually take a board position in our portfolio companies working side-by-side with company leadership to shape strategy and – if needed – give them tactical counsel, talent, tools and innovations to deliver on their plans.

Whereas we’ve been successful to date in the VC space across multiple sectors from flight simulators (Sim-Industries) to online brokerage (TradeKing) to flooring technologies (Innovations4Flooring) and open to opportunities, we are increasingly focused with our investments in larger, more mature companies, particularly ones with three qualities: one, a unique competitive position through a patent, brand or operational efficiency; two, strong intrinsic growth potential; and three, strong underlying trends in the industry or marketplace. We also love helping companies tackle tough, complex problems and turn themselves around. We’re actively looking at opportunities in that space, particularly among larger enterprises.

How are exit strategies agreed and structured? What are typically the common areas of disagreement regarding exit timing and strategy between the business owner and Ramphastos Investments?

We don’t have a predefined exit strategy, but we never buy into an enterprise without having a good idea about whom we’re going to sell it to. If we don’t know our exit, we won’t buy it – it’s as simple as that. And because we invest our own money, we have no pressure or obligation to sell. Our capital is patient: we’re in no hurry. Rather than working towards a specific exit, we focus on the execution of a predefined strategic value creation plan. When companies continue to grow, they will sooner or later attract buyers. We are all about value creation, and that can take time. We exit when the time is right.

To date, we have never had disagreements with the management teams on timing or nature of the exit strategy. The social dimension is important to us. With a good deal, everyone should be happy: buyer, seller, management, employees, partners – everyone. When the ABN AMRO bank dared to support us with 200€ million on our first really big deal, we rewarded them with a discretionary 10€

-million premium at exit, without any contractual obligation to do so. They had never experienced anything like that before. We don’t do deals where we can’t make such things happen.

Out of all of Ramphastos Investments’ success stories, what would you say are your three biggest achievements?

The first is without a doubt Telfort, a Dutch mobile telecom provider, which we acquired as majority shareholder, grew exponentially and sold within nine months to market leader KPN for more than a billion € in 2005. That deal was a milestone for Ramphastos, because it earned us our first half billion. It’s also a good example of the success of a robust top-line strategy. While part of our success involved getting the costs under control, we grew the company’s value explosively by swiftly migrating the business from an online- only platform to the high street retail channel, through creative retail and consumer incentives, and we raised the consumer price sharply while remaining the market’s price leader, driving profits from 50€ million to 150€ million in just eight months. We also capitalised on excess network capacity by opening our network to mobile virtual network operators, and we closed a unique deal with Huawei, as the company’s European launch customer.

A VC success story that we’re super proud of involves Sim-Industries, a developer of flight simulators that we launched in 2004 and sold to Lockheed Martin in 2011. The story is a good one, because it shows how being flexible and thinking out-of-the-box can steer a start-up to success. Sim started out in the software business, developing software for flight simulators. When the market leader in that space stood in our way, we asked ourselves: Why not go further and build simulators too? We fought hard to gain a place in an oligopolistic market, with incumbents poaching our employees and trying to scare away our suppliers, clients and us. In the meantime, by taking a fresh look at design, we built a superior product, overcame legacy issues, installed a senior management team, focused on execution excellence and became market leader in civil aviation simulators for leading aircraft types.

A third story I’d like to share has less to do with business, but everything to do with deal-making. It’s a deal that centres on an issue that is close to my heart: the preservation of species; and it’s a deal that fulfils a dream that I worked personally, persistently and patiently to fulfil over 17 years – making a home for two giant pandas in the Netherlands. That dream began when I bought a zoo located to the east of Utrecht and returned it to profitability. After hundreds of hours’ worth trips back and forth to China, education, complex relationship building with the Dutch and Chinese governments - across three Dutch prime ministers and three Chinese presidents, the dream became a reality in October 2015, when I travelled with a trade delegation and our King to the Great Hall of the People in Beijing to sign a ten-year agreement in the presence of Xi Jinping. The agreement includes an annual contribution of one million dollars to the preservation of the panda and the conservation of its natural habitat in China. The pandas arrived almost exactly a year ago at the zoo and are thriving in their new home, which was voted this year as the world’s most beautiful panda enclosure.

Over the years, what has kept the company moving forward? What sets you apart from the competition?

What’s kept us moving forward first and foremost is that we absolutely love what we do. We love building businesses. We love wrestling with thorny challenges and innovating our way with management teams toward successful turnarounds and outsized growth. We love closing deals that make everyone a winner.

It hasn’t been smooth sailing every year. I founded the company with plenty of fits and starts, as you heard, and when the Great Recession hit, it didn’t look at us and say: They’re a nice bunch of people, let’s give them a break. I’m happy to report that all of the companies in which we hold a majority of shares are turning a profit today.

What’s gotten us through the tough times is a combination of our unbreakable optimism and solutions-mindedness, our deep respect for one another and our collective creativity.

There’s also the fact that that we nurture close, trusting relationships with the management of our portfolio companies. We’re open with one another, and all of us here are ready and willing to jump in and contribute. We’re able to anticipate problems before they surface or tackle them quickly before they spin out of hand.

To put your finger on what makes us different, add to that our resourcefulness, boundless energy and appetite for challenging the status quo. We thrive on pushing ourselves and our companies to innovate and adapt constantly to drive revenue and margin growth, and in today’s world, if you don’t have the mindset and wherewithal to be agile and adapt, you’re in serious trouble. As a financially independent investor, we are free to take risks, tackle problems that others avoid and make the kinds of bold moves that catalyse truly breakthrough growth.

What do you hope to accomplish in the near future? Are there any exciting new projects that you can share with us?

I have an important role to play as the chief motivator, inspiration and driver of creativity within our team, and I hope to continue to do so for many years. Entrepreneurship is what fires my heart and gives all of us here energy, inspiration and strength. And all of us at Ramphastos see the kind of creativity-driven value that we’ve been creating here pays itself forward to beyond Ramphastos to the management teams and employees and suppliers of our companies and markets they serve. We have been doing well for almost a quarter of a century and aim to continue to steer this course.

As for projects on the horizon, we have some really exciting deals on the way. I wish I could tell you more, but I can’t. Stay tuned - there are more chapters to come.

Website: http://www.ramphastosinvestments.com/

There comes a time in the life of many businesses when owners cast around for ways to borrow money for growth. But those intending to use venture capital and private equity should plan particularly carefully before committing. Many don’t, and the result can be catastrophic.

Whilst the challenge is simple enough: to get the best deal whilst surrendering the least amount of control and equity. How to achieve that is less straightforward.

What goes wrong is poor attention put into the three basics: business plan, motivation, and due diligence.

Usually, the fractures start to appear because the borrowing enterprise has just not prepared itself. Unfortunately, the thought of ‘free’ cash in return for a slice of equity can tempt owners to make growth predictions that overreach reality. But the wise tread carefully and take advice. Without careful execution, the deals turn sour, with original management teams seduced into arrangements that end up with them losing both money and control.

There are horror stores out there. One UK business originally worth £5 million saw a £7.5 million private equity investment turn rapidly from a lifeline to a millstone, as it failed to meet challenging targets to which its owner had originally agreed. The software company now owes its backers £22.5 million in unpaid interest and redemption charges. Only one of the original management team is still in place and their stakes are now worth little.

This particular nightmare is neither the rule, nor the exception, but illustrates what can go wrong.

Private equity and venture capital can positively transform the fortunes of a business, injecting expertise as well as cash to help it grow. When it works, everyone benefits from a deal between risk and reward. But when it fails, the biggest loser often turns out to be the original management team.

In the end, the siren call of ceding absolute control for someone else’s financial support is not for everyone. Clients of mine stepped back from the brink, despite a willing lender. The reason was unease that the lender’s need for a return on their cash over a fixed term was at odds with the more relaxed instincts of the management team to let things in their restaurant chain grow organically.

The business plan is crucial and more than just a calling card. It is the basis on which the institutional equity investor decides how much to lend and what to demand in return. Firms that overstate likely growth to get investment are doing themselves no favours.

This is because valuations, upon which the entire deal will be based, are dependent on cash flow forecasts. Get them right, or better still, set them lower than they subsequently turn out, and everyone is happy.

But if the business has to keep going back to the investor, the lender will gradually wrest away control in exchange for their cash. They will insist, for example, on new agreements that may keep notional share ownership intact, but take control of decisions over fund raising and board membership.

In simple terms, the more a business falls short of an agreed business plan, the more it ends up giving away.

Which brings us to the next important area: motivation. A management team must ask itself what kind of life it wants. Once private equity is on board, a roller coaster ride starts. Demands are made, targets need to be met. The lender’s need to recover cost and secure a return requires growth at an agreed rate. This can be incompatible with watching your children play sports on a Wednesday afternoon, say. Do the soul-searching.

Nothing will be a problem if your business is growing, of course. But if it isn’t, expect a tough life. The management team must be wholly committed or problems start, particularly when targets in the all-important business plan fail to be met.

The final key component to borrowing money is to carry out due diligence on any lender. Examine the portfolio that every equity house lists. Speak to the firms involved and find out their experience.

Borrowing money from a bank is a far more removed, transactional experience than taking it from a venture capitalist or private equity lender. Their loans come with an expectation of involvement, so personal and professional chemistry is important. The process is effectively inviting a new member on to your key team.

Sometimes organic growth is best - not only because it allows more control to be kept by the original owners, but it can also be better as a fit. The culture of a business can be rudely disrupted by the keenly focused financial demands of an agreement with venture capital and private equity funders.

And choose wisely. The ideal lender will treat your enterprise as more than just a risk to be shared amongst many other. But remember: Private equity wants to have your cake. The trick is to avoid being eaten entirely.