David Hellier, Partner at Bertram Capital, oversees the firm’s business development team, where he directs sourcing, investment opportunity assessment and intermediary relationship development (see his full bio below). He was kind enough to contribute to our ongoing series of Q&As and analysis concerning private equity portfolio management by sharing his thoughts on the current state of PE strategies, as well as their evolution over the past few years:
As the PE industry appeared to adopt more of a buy-and-build strategy over 2014, did you see the shift more of a response to market conditions or the natural culmination of value creation aspects of general PE strategies evolving to focus on operational performance?
The move toward buy-and-build and developing a specific operating capability has gained speed over the last five to seven years. This has been driven by the increase in multiples which has necessitated private equity firms to adopt value creation activities beyond the traditional LBO model, or what we describe as “buy and hope.” While there are firms who have organically embraced and adopted a buy and build approach from inception, we see the trend toward an active buy and build approach as more of a response to market conditions.
With the proliferation of add-ons over the last few years, what would you say makes them most attractive?
The attraction of a comprehensive add-on strategy is threefold for Bertram Capital: 1) add-ons provide strategic value to a platform either as a consolidation driver or as an enhancement to the business (i.e. extending a product line or expanding a sales channel); 2) add-ons help drive multiple arbitrage; 3) add-ons accelerate capital deployment opportunities.
Have you seen any significant shifts in portfolio management practices by PE teams over the past few years? If yes, what do those changes mainly consist of? If no, why do you think that is?
Operating partners are definitely the buzz in the PE world today. Additionally we have seen firms take a more focused industry investment approach.
What other shifts in PE value creation have you observed as of late, and how have you changed your own practices (if you have found the need to do so)?
Bertram Capital has built a very specific operating methodology, the Bertram Capital High 5, from our inception as a firm. The High 5 focuses on five core operating principles—add-on acquisitions, management enhancement, supply chain optimization, sales and marketing improvement, and technology optimization—to drive growth and value creation. We specifically target technology optimization opportunities through our investment in our in-house IT services team, Bertram Labs. Bertram Labs is composed of a seasoned team of IT professionals who assist our portfolio companies in software development, software selection and deployment and Internet services.
Do you expect the increased focus on operational performance improvement as a main component of value creation to continue into 2015 and beyond?
As long as valuations remain high and an abundance of investment capital exists, sponsors will need to find creative value creation methodologies to deliver returns their LP base expects.
Where do you see the most opportunity for buy-and-build with regard to industry? Related to that, what are the growth drivers that make that industry particularly attractive to PE firms?
We focus on three industry verticals—business services, consumer, and industrials/manufacturing—because we believe they offer an excellent opportunity for applying our version of buy-and-build. We frequently find investment opportunities within these three sectors that are conducive to our operating approach: a robust add-on landscape, sales and marketing improvements, supply chain and manufacturing optimization improvements and technology enablement. We target under-optimized businesses who should be growing but aren’t due to either lack of investment in the aforementioned operating initiatives and/or lack of internal capability to attack these initiatives. We also target businesses that have a large available market or businesses we can expand the available market by building out product lines and extending sales channels.
In that industry, what are some of the key steps undertaken to execute that accretive build-up, and how do they differ compared to other sectors?
We apply the same growth operating methodology to all of our investments, regardless of industry sector.
When positioning for an exit, especially in today’s environment, what are the most important factors you’ve seen PE firms increasingly focus on? Which multiple arbitrage strategies do you see employed most often?
Bertram Capital focuses on investing in companies we believe will be a compelling acquisition for a strategic buyer, so understanding the potential strategic buyer universe before we invest is critically important. That means we spend a significant amount of time making sure we buy the right business that will be attractive as a larger, more scalable business to a strategic buyer. We drive multiple expansion through our growth initiatives and multiple arbitrage through our add-on acquisition strategy.
David joined Bertram Capital in 2008 and became Partner in 2010. He oversees Bertram Capital’s team of business development professionals, directing sourcing, investment opportunity assessment, intermediary relationship development, sell-side selection and firm communications. Mr. Hellier has more than twenty years of operating experience launching new consumer businesses, products and brands, and elevating them to positions of worldwide recognition and trust. Prior to Bertram, David was President and CEO of The Gemesis Corporation, an early innovator in the field of diamond growth technology. David has also held senior management positions at Ask.com (IAC) and Iomega (EMC). He began his career at Gates Energy Products/Energizer Power Systems. Mr. Hellier graduated from the University of Florida, where he earned a Master of Arts in Economics and a Bachelor of Science in Business Administration.
Featured image courtesy of Wikimedia Commons user Alossix.