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Multimedia | Stage 4 of the private equity transaction life cycle

Years 3 and 4: Grow revenue and profit

Value Creation Conversations

In this video, Director Matt Day, shares key points of the fourth stage of the transaction life cycle: Grow revenue and profit.

Key topics discussed:

  • The focus areas of the strategy and management consulting group
  • An overview of strategy evaluations
  • The typical client profile, including a comparison between private equity firms and portfolio companies
  • The support provided in both strategy development and implementation/execution
  • Commonly addressed engagement themes

Watch the video now for a deep dive into those crucial years 3 and 4.

Matt Day: Hello, my name is Matt Day. I'm a director in the Baker Tilly Strategy consulting group and part of the private equity practice.

Interviewer: Thanks, Matt. I'm excited to be talking to you today.

Matt Day: I'm excited to talk to you as well. This is very nice.

Interviewer: I'd like to start and just talk about what are the primary areas that your group focuses on at this stage of the private equity life cycle?

Matt Day: The primary areas that we focus on is, number one, growth. Growth of almost any kind, but we really help companies figure out how they're going to grow and how they're going to grow profitably into the future so that they can bring a strong return to their private equity ownership.

So, growth and growth strategies, but it comes down to growth of profits, growth of EBITDA, how are they going to work on their operations to make sure they can cut costs? Is there anything they can do in their supply chain to make sure that they can do things a little bit more efficiently? And then really focusing on other things like digital strategy or tariff implications and sometimes we look at some things like tax issues, but we really leave that to the accountants.

Interviewer: Thank you. That's helpful. What does the strategy evaluation look like? How do you start this process?

Matt Day: So, first we go in and we do a lot of interviews with the high level management, the CEO, the CFO, and we just really figure out what their strategy has been so far and then we walk them through what are their main values and what are the areas that they want to get to, what are the goals that they want to achieve over the next few years?

And then we sit down and we look at all the different potential areas that they can grow into and the areas that they can improve their operations and through a number of different workshops and going back and looking at what competitors are doing as well as what other maybe like-companies are doing either in their industry or adjacent industries. And we come together with a number of different ideas and we iterate with the client to see which are going to have the best traction and which you're going to really move the ball forward.

Interviewer: When you say client, are you hired by the private equity firm, or are you hired by the portfolio company?

Matt Day: We're hired by both actually. So, the private equity firm, we have a very strong Rolodex of private equity firms that we work with that we have worked with for a very long time and a lot of times they bring us in and they say, "We've got this portfolio company that we're not quite sure what to do with, it's been through or four years. They've had okay growth, but we really need to get them to the next level."

And so that happens quite a bit. Sometimes we have built relationships with those portfolio companies and so they reach back out to us and then we just have the relationship with them at that point. But sometimes we have portfolio companies that have just reached out to us and said, "We're looking for a consultant group." We had one last year that is a client of Baker Tilly's in the broader Baker Tilly family, and they said, "We heard you guys do growth strategies, we'd love you to come in and help us. We have a bit of an adversarial relationship with our board and with our owners, and we'd really like you to help us get into a position where we can grow and have the board on board with us."

Interviewer: How receptive are the portfolio companies? If the private equity firm is hiring you, are they welcoming with you with open arms?

Matt Day: Usually they're opening. Usually. We go in and oftentimes they're a little bit skeptical or they're a little bit hesitant and they don't really know why we're there and they think we're there to maybe be critical or point out faults. But we're really there to collaborate with them, right? And so we come in and we get to know them. They get to realize that we're not evil people. We're here to collaborate and to consult them and to help them get to new levels where they weren't before.

So, once they understand that we're on their side and we're supportive and we're really for them, then they really resonate with that and then we end up building really strong relationships and I have a number of people at portfolio companies that will call me on the phone and say, "Hey, Matt, I'm thinking about this. How should I do this?" And so when you build that type of a strong thought partner relationship, it's very deep and it's helpful and it's really a value add for our clients.

Interviewer: What other niches do you focus on in this practice?

Matt Day: There's a few. One of the ones that we've done a lot of work on is pricing. So, really helping people figure out where they can adjust their pricing of their product offering to help increase the profitability of the product as well. Another one that we do that is related to pricing is compensation. We've had people call us up and say, "Hey, we're trying to hire air conditioning techs in Houston and we don't know how to do it. We don't know how much to pay them. We don't know what the competitors are offering." So, really understanding in the labor force how they do compensation. And we've actually done compensation studies all the way up to the CEO level, so we do quite a bit there.

Digital strategies is another area that we focus on. It's an area with a lot of interest right now. People all across industries are looking to beef up their digital strategies, but a lot of them don't know how to do it, and they don't know how the digital world is developing in their industry. So, we go in and we help them figure out where they can improve on a digital standpoint.

Another one that we've been doing lately is acquisition strategy. So, portfolio companies in their growth, they're trying to figure out who they can go out and buy, and we put together a number of robust tools to help them collect a list of potential targets, to help vet those targets, to help figure out what are their priorities as they're thinking through the acquisition strategy. So, that's something that we've really developed into a pretty strong niche lately.

Interviewer: Great. Once you come up with these strategies, how often are you helping to implement, to execute? Are you doing it from beginning to end? Where in that processes are you guys most of the time?

Matt Day: We're mostly at the creation phase and the ideation, helping them figure it out and helping them put the strategy together. And it's really important for them to have people on their team to help do a lot of the implementation. We have those capabilities both at Baker Tilly as well as previous to Baker Tilly. We've done a lot of implementation work. So, we certainly have that capability when clients need it. But typically we like to have the clients elevate people on their team or hire the right people to come in and manage that full time. So, that's typically how we handle that.

Interviewer: Are there any common themes that you see among your engagements?

Matt Day: Common themes? I would say the common theme I see is that people are really trying to do good and so almost every company that we've worked with, they really are trying to make the world a better place. And while they're trying to do it profitably and they're trying to make a good return for their customers. And so something that we've seen is just people are willing to collaborate, people are really willing to communicate, people are willing to go above and beyond to make sure that everybody is successful. That type of collaboration I've seen quite a bit, and I think it's really made a strong impression on me.

Other things, there's a lot of companies out there that are not great at doing market research, and so when we've been able to come in and provide some very heavy market research tools and help them really analytically take apart their market, then a common theme is when they see a lot of these outputs from our analysis, a lot of the growth areas just become obvious to them.

So, walking them through that process of going through the market research, going through the financial due diligence, going through the strategic due diligence, and then building up to what the strategy should be. At that point, it's just working with them and they really know where they need to go as well.

Interviewer: Could you give us a few examples of some of these companies and stories that you've been working with lately?

Matt Day: For sure. So, we have a food dairy client that has been strong in the dairy industry for many decades, and they're trying to transition to be more than just a dairy company and do lots of different food ingredients. And we've helped them on all sorts of areas from ESG to growth strategies to really navigating the government landscape. And we also helped them navigate their relationship with their board, so that was quite cool.

Another example was a company that deals in hiring off-duty police officers, and they were looking to do acquisitions and we helped them look at all sorts of different companies out there. And it's interesting because we were dealing with the guy who ran the company and started the company was a former cop, and it's just a very different style than the typical business person that you deal with.

I already talked about the air conditioning techs down in Houston, and that was a company that does all sorts of different capital expenditures (CapEx) investment projects for the oil and gas industry as well as the chemical industry and so our portfolio really goes across all sorts of industries.

Interviewer: Thank you so much. This has been great. I appreciate you taking the time to talk with me today.

Matt Day: Of course. Thank you.

Interviewer: Thank you for watching. Count on Baker Tilly to help guide you through every step of the private equity transaction life cycle.


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