What’s in an IRR?
1. Maximize Leverage at Inception and Refinance the Capital Structure Frequently
2. Complete Bolt-On Acquisitions
3. Improve Performance and Bolster Cash Flows
- Increasing margins through better cost management — relocating production facilities to lower-cost countries, for example — and economies of scale by growing volume.
- Boosting cash generation by reducing working-capital requirements, cutting capital expenditures, minimizing cash leakage, and entering into sale and leaseback agreements.
- Discontinuing or disposing of unprofitable or low-margin activities. This practice earned some early LBO players the moniker “asset-stripper” and was common in the 1970s and 1980s when conglomerates with unrelated and underperforming divisions were sold off piecemeal. Nowadays, few targets suffer from the same lack of focus.
- Growing sales through refined price point strategies, new product launches, etc.
4. Aim for Positive Multiple Arbitrage
5. Optimize the Investment Holding Period
Building the Value Bridge
Vintage Fund 2012: Hypothetical Value Bridge, in US$ Millions
Watch Out for the Downturn
Candover’s 2005 Vintage Fund: The Last 10 Deals
| Transaction | Date of Completion | Enterprise Value (€ Millions) |
Cash-on-Cash Equity Return |
| EurotaxGlass’s | June 2006 | 445 | -91% |
| DX Group | September 2006 | 654 | -89% |
| Hilding Anders | October 2006 | 996 | -95% |
| Ferretti | October 2006 | 1,760 | -100% |
| Parques Reunidos | January 2007 | 935 | +25% |
| Capital Safety | June 2007 | 415 | +183% |
| Alma Consulting | December 2007 | 800 | -91% |
| Stork | January 2008 | 1,639 | -33% |
| Technogym | June 2008 | 1,000 | -37% |
| Expro | July 2008 | 2,240 | -76% |
| TOTAL | -54% |
Professional Learning for wealthytrails.com Members
