Aggression pays off in times of crisis - AVCJ Forum

James Ahn, an Asia-based managing director at Clayton, Dubilier & Rice (CD&R) said 2020 had been the busiest in his firm's history, with $4 billion deployed across 10 deals.

“One lesson we learned from the 2008 crisis is to be aggressive. Some of our best returns came shortly after the global financial crisis,” said Ahn. ”You do need to have a defensive posture during COVID-19, but at the same time, if you have the capital and you have market-leading businesses, there is the opportunity to consolidate a lot of weaker competitors. ”

He added there were several situations in which CD&R had previously held discussions with companies to no avail. Then COVID-19 caused a fundamental shift in business prospects, rescue financing was required, and negotiations quickly resumed.

Mark Valadao, a managing director at China-focused Pagoda Capital, noted that cross-border expansion is very much on the agenda for companies able to act on it. “We've seen an acceleration of interest among technology and healthcare companies - with strong positions in their home markets, whether it's Australia or the US or Europe - to expand into new markets," he said.

The importance of being able to recognize and move quickly on opportunities has inevitably brought private equity firms' value creation capabilities into focus. CD&R has about 40 operating partners and advisers who participate in investments from sourcing through portfolio management.

”Following COVID-19, our operating partners are having a day-to-day interaction with the portfolio company CEOs. That mentorship and alignment allowed us to build plans within a few days on what were the priorities and how to move forward,” Ahn said. He noted the chairman of each company is usually an operating partner or advisor.

Permira, meanwhile, is building out in-house resources based on specific areas of expertise. The firm has centers of excellence for digital marketing and advanced analytics, robotics and automation that work directly with portfolio companies and help drive the execution of value creation initiatives.

“Particularly in growing emerging economies in Asia, they may not necessarily have that depth of mature expertise. We taking those best-of-breed approaches to give a head start to our Asian portfolio companies and it has been quite valuable. That's been amplified in the COVID-19 context,” said Shane Lauf, a principal at Permira.

Not all private equity firms find that the operating partner model works best for them. Australia-based Pacific Equity Partners (PEP), for example, tends to hire talent at the portfolio company level and incentivize those executives through management equity plans. The alignment this creates is intended to endure almost regardless of shifts in the macro-environment.

“We did try having some operating partners for a little while, but it wasn't for us. We found it sort of frustrated,” said Matt Robinson, a director at PEP.

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• Topics
• Greater China
• Australasia
• South Asia
• Technology
• GPs
• Pagoda Investment
• Pacific Equity Partners
• Permira Advisers
• Operating partners
• AVCJ Events
• covid-19
• coronavirus