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1、*Training objectivesShare Bain perspectives on due diligence and portfolio managementStrategy conceptsObjectivesProcessToolsProvide case examplesFacilitate discussions on patterns of success and failure*AgendaBain Private Equity backgroundStrategy OverviewHow we think about strategyUseful concepts (
2、e1.g. basis on competition, growth, customer value, )Typical analytical tools used in strategyStrategic Due DiligenceKey issues typically coveredTools and activities usedWatch-outsCheck listsPost AcquisitionBlue printing15 min3 hours2 hours1 hour*Bains Private Equity businessCritical component of Ba
3、ins global business>20% of firms businessEight-fold growth since 1997Vast global network of experience in due diligence and post-acquisition performance improvement300+ professionals dedicated to serving PE clients in North America, Europe and Asia500 transaction assignments annuallyAdvised on 60
4、% of large cap ($1B+) transactions in North America and Europe in last 10 years4X the next largest firm serving LBO fundsFully aligned incentives - Bain partners have invested $500M+ in private equity deals and funds over last ten years superior returnsVery serious commitment to private equityClear
5、market leader*Bain helps PE funds realize superior returns - and is willing to align its interests with clients to do soNote: Peer comparison quartile information per Thomson Financial Venture Economics, as of Dec. 2005*Bain supports PE funds in each of these areasObjectives:Duration:Bain activities
6、:DealgenerationImmediately post-acquisitionDuediligenceOngoingvalueadditionExitRight investment focus/thesisAugment deal flowBetter deal decisionsAvoid dogsHidden gemsRight pricingDrive for rapid deal returnsIncreased company valueMaximum deal returns1-4 months3-12 weeks1-3 months3-12 months1-3 mont
7、hsFirm/fund strategy and operationsPerform diligence Market dynamicsCompetitive positionCustomer franchiseManagement strengthAssess performance improvement opportunitiesProvide post- acquisition agendaDevelop blueprintClear directionPrioritised initiativesQuick hitsKey metrics & milestonesManage
8、ment WorkshopsAlignmentPrioritisationFocused initiativesSupport most leveraged effortsGrowth strategiesRevenue enhancementCost/asset reductionAdd-on acquisitionsOrganisation developmentStrategy “Refresh”Prepare for exit (position for performance)Identify optimal exit strategyPrepare selling document
9、sReverse due diligencePre-qualify buyers and customize approachProfile industriesScreen targetsDevise plan to approach targets*Working Together Call earlyFees not incurred until actual engagement startsAllows us to get organized on our end, align most appropriate resourcesCan often times help you ve
10、t key issuesShare your investment thesisWe may have looked at the target before, or very similar dealsWe can be a useful sounding boardHelps us focus our work plan and dayto-day analysisSend as much information as soon as you receive itWe can sort through whether it is relevant for our workAllows us
11、 to focus on incremental work, maximize value of our workProvide feedbackIs this allowing you to prove/disprove or refine your investment thesis?Is it providing the right input into your deal model?*AgendaBain Private Equity backgroundStrategy OverviewWhat is strategyBusiness unit strategyCorporate
12、strategyStrategic Due DiligenceKey issues typically coveredTools and activities usedWatch-outsCheck listsPost AcquisitionBlue printing15 min3 hours2 hours1 hour*3 questions to be addressed in this sessionQuestion 1What is strategy?Question 2What percentage of companies can achieve sustained value cr
13、eation?Question 3How to achieve sustained value creation?*What is strategy?Question for the group*What is strategy? “Strategy is: a plan designed to achieve a particular long-term aim often contrasted with tactics” Oxford English DictionaryBain 5view: A strategy is more than just a plan Bain definit
14、ion of strategyA strategy is a set of proprietary decisions on where to play and how to winServe customers better than competitors and/or at lower costLeverage capabilities which are unique and differentiatedThe quality of the decisions (and the basis on which you make them) defines good vs. bad str
15、ategy*A good strategy must provide a clear path to sustained value creationSustained value creationLong termreturns abovecost of capitalProfitable (top and bottom line) growth=Earnings growth15%+10-15%5-10%0-5%0-5%5-10%10-15%15%+Revenue growthTotal shareholder return5.3%5.1%5.4%19.9%11.4%13.8%5.3%*L
16、eadership is often defined by scale:higher profit potential via lower costCompanies with higherRMS have higheraccumulated experienceHigher accumulatedexperience provides an opportunity for lower costs (given experience curve)At similar prices the competitor with the lowest cost has the potential for
17、the highest profits*How to competePercent of total SVCs:Dependence on Scale Leadership:Examples:Cost positionDifferentiationControlOften scale leaders in own markets, but generate disproportionate returns through control of a value chain choke point, asset, or customer segment10%Companies draw compe
18、titive advantage from lower cost position than competitorsNearly always requires scale leadership in a properly defined marketExceptions typically build on network economics or supply chain integration60%Brand, product or service differentiationScale leadership can be leveraged but where leader is d
19、ifferentiated, followers can benefit by:Creating leadership in a niche segment OR“Hitch-hiking” on a leaders positioning30%*Value chainEach requires a different set ofstrategic tools to deploy effectivelyKeystrategictoolsHigh road/low roadRelative market shareROS 5-10%ROS 0-5%ROS>20%ROS 15-20%Pre
20、mium percent of categoryRMS-ROSRelative market shareReturn on salesExperience CurveAccumulated ExperienceCost per unitCustomer loyaltyNet Promoter ScoreRevenue CAGR+Profit poolCost positionDifferentiationControl*An experience curve follows two basic principlesThe price of a given unit of value decli
21、nes predictably as a function of the experience an industry has accumulated in providing that unit of valueThe cost to provide a given unit of value should decline as a firm accumulates experience in providing that unit of value*Prices and costs decline as an industry evolvesLittle competitionHigh p
22、ricesDeclining costs (due to experience)High marginsIncreasing competitionDeclining prices (due to increased supply)Declining costs (due to experience)Decreasing marginsDecreasing competitionStable prices, costs and marginsHigh-cost firms consolidate/exitCostPriceProduct developmentNew entryConsolid
23、ationHigh margins attract entry*Carpet industry prices in 1988 were only one sixth of what they were in 1950*ROS/RMS compares a businesss actual profitability to its potential profitabilityROS = Return on Sales: a measure of profitabilityRMS = Relative Market Share: a companys position relative to t
24、he market leaderROS/RMS compares the performance of a company and its competitors to the industry norms of expected returns for relative sizeHelps identify reasons for clients underperformanceToo low relative market share given current profitability -> potential to gain market shareToo low profit
25、ability given high relative market share -> potential to cut costs and improve profitabilityMay not work in some industries Customer retention may drive profitability rather than market share, e.g., in financial servicesAbility to charge a premium may drive profitability, e.g., in branded goods*A
26、ccumulated experience drives the ROS/RMS relationshipHigher accumulated experience is positively correlated with RMSAccumulated ExperienceRMSHigher accumulated experience provides an opportunity for lower costs and higher profitsAccumulated ExperienceCost per unitRMS is a proxy for accumulated exper
27、ience. RMS is positively correlated with profitabilityRMSProfitability*The relationship between ROS and RMS typically falls within a normative bandHighLowLowHigh0.1x10x1xRelative market shareStrategic position/potential profitabilityLong-term returns earnedNormative band*We use ROS/RMS to help compa
28、nies achieve full potential along two dimensions Relative market share20%0%0.2x10x1x10%To achieve its full potential, a company must achieve both strategic and operating full potentialReturn on sales2. Improved strategic position1. Operating improvements Gain share and improve margin Profit improvem
29、ent program (cost reduction/ asset efficiency etc.)*Value chainEach requires a different set ofstrategic tools to deploy effectivelyKeystrategictoolsHigh road/low roadRelative market shareROS 5-10%ROS 0-5%ROS>20%ROS 15-20%Premium percent of categoryRMS-ROSRelative market shareReturn on salesExper
30、ience CurveAccumulated ExperienceCost per unitCustomer loyaltyNet Promoter ScoreRevenue CAGR+Profit poolCost positionDifferentiationControl*With consumer products, category nature and RMS predict profitability Predicted Profitability (Return on Sales) based on Nature of Category and Relative Market
31、Share R? = 0.68Actual Profitability (Return on Sales)*The predicted profitability of each quadrant has been determined empirically*Typically RMS is drawn using a log scaleAvg. ROS: 15-20%Avg. ROS: 5-10%Premiumpercent of categoryHighLowLowHighRelative Market Share*60%Mapping brand portfolios by “prem
32、ium-ness” and RMS creates an insightful toolA premium brand category should be quite profitable. But in the value category, even brands with high RMS are unlikely to earn attractive returnsAvg. ROS: >20%Avg. ROS: 0-5%*Strategy implicationsAverage ROS15-20% >20% 0-5% 5-10%High RoadProtect and g
33、row the high endLow RoadGrow the high end and prompt customers to trade upDead EndCompletely rethink participation or exitHitchhikerDont rock the boat*"On a scale 0-10, how likely is it that you would recommend this brand to a friend or colleague?"Net Promoter Score (NPS)% Promoters% Detra
34、ctors109876543210PassiveFocus on real enthusiasm “Delight”Focus on emotional bondingSource: Bain research, Frederick F. Reichhelds "The One Number You Need to Grow", HBR Dec 03Net Promoter Score is a simple measure of customer loyalty*NPS correlates well with micro-behaviorPromoters (9 &am
35、p; 10) act upon their loyalty: They stay longer, buy more and attract new customersRetention/DefectionCross/up-sellingReferralsSource: Bain client example (all vales indexed, Promoter=100%)INSURANCE CO EXAMPLE*and macro-behaviorNet Promoter scoreCredit card companiesNet Promoter scoreNet Promoter sc
36、oreSource: Fred Reichheld, The One Number You Need to Grow; analysis from Bain & Company Boston Sept 2003; Satmetrix Net Promoter data 2001-Q12004, Nilson Report 2000-2004SupermarketsRetail*Value chainEach requires a different set ofstrategic tools to deploy effectivelyKeystrategictoolsHigh road
37、/low roadRelative market shareROS 5-10%ROS 0-5%ROS>20%ROS 15-20%Premium percent of categoryRMS-ROSRelative market shareReturn on salesExperience CurveAccumulated ExperienceCost per unitCustomer loyaltyNet Promoter ScoreRevenue CAGR+Profit poolCost positionDifferentiationControl* Value Chain analy
38、sis provides a systematic method for disaggregating a company or industry into its major discrete activities to understand sources of competitive advantageValue Chain analysisEquipmentDesignInstallOperateServiceMonitorSuccessively finer disaggregations of activities can expose differences important
39、to competitive advantage*Distribu- tion/OutboundLogisticsServiceValue chain scope depends largely on the purpose for which it is being used Company value chain:Major activity value chain:Tech., R&DPurchas- ing/InboundLogisticsManu- facturing/OperationsMarketing &SalesConversionFinal Assembly
40、Quality AssurancePackagingCapability analysisACFCProcess re-engineeringCost analysisSystem or industry value chain:Inputs(Supplier)Conversion(Manufacturer)Distribution(Distributor/Retailer)Consumption(End-User)SegmentationProfit poolSample UseMaterialPreparation*Profit Pools are the total profits ea
41、rned at all points along the value chainU.S. Consumer Photographic Industry Profit Pool (1995)Total profit= $1.9B“Chokepoints”Where and how is money being made? How has it changed?*Three ways to use profit poolsU-Haul: identified a large untapped source of profit in the low margin truck rental busin
42、essSeized first mover advantageEntered accessory business at a low costReduced prices (and profits) in core truck rental business to attract customers for higher margin accessory businessIdentify new sources of profitDell: evaluates which customers to pursue and which channels to targetWith direct s
43、ales, Dell splits what would be dealers profits with itself and customers through lower pricesRegular customer re-segmentation identifies most profitable customers, allowing Dell to react quickly to new profit sourcesDevelop distribution strategyGuide pricing, product and operating decisionsAnheuser
44、 Bush: recognized industrys profit pool driven by premium beerIncreased marketing of premium brandsVertically integrated into can production, thereby raising competitive barriers around the pool by cutting manufacturing and distribution costProfit pool analysis may allow you to see things that other
45、s miss*AgendaBain Private Equity backgroundStrategy OverviewWhat is strategyBusiness unit strategyCorporate strategyStrategic Due DiligenceKey issues typically coveredTools and activities usedWatch-outsCheck listsPost AcquisitionBlue printing15 min3 hours2 hours1 hour*Most companies aspire to outperform their marketSource: Profit From The Core survey of over 2000 companiesyet only 1 in 10 achieve sus
