As the impacts of the COVID-19 pandemic become more evident – on the economy in general and on businesses in particular – Larx Advisors and its private equity clients are looking for ways to manage through this period of crisis and uncertainty. The effort involves balancing the needs of stakeholders with varying but interconnected needs in times of distress.
|STAKEHOLDER||NEEDS DURING CRISIS|
|Funds||Clarity of forecasts and 13-week cash viewForce ranking of relative distress in the portfolioUnderstanding of gaps in necessary management talent & execution capacity|
|Limited Partners||Comfort in risk mitigation planning and execution by the fund|
|Management Teams||Crisis-oriented objectives and KPIsBest practice insights and interpretation of government impactsClear directives on prioritiesFunctional support as needed|
|Employees||Clear communicationsCascaded KPIs into personal metricsPriority goals and tasks|
|Customers||Clear communicationsPerformance & delivery expectationsChanges in service levels, payment terms and/or support|
|Lenders||Real-time updates to risk profileForward-looking needsComfort in risk mitigation planning and execution by borrower(s)|
Larx is partnering with its PE investor clients to assess risks, identify critical business requirements, and develop a management-led roadmap to meet the challenges posed by the current situation to portfolio companies. The operating theme in times like these is: “A set of small changes can have a big impact on value”. In most industries, a 1% improvement across pricing, volumes, COGS, overheads, CAPEX and other levers can drive a cumulative improvement in value of over 20% in aggregate. By focusing the management team on a small set of objectives and initiatives, we can help lay out a path forward that sees the company through to better times ahead, while giving comfort to employees, investors, and lenders that a sound plan is in place.
Larx utilizes a comprehensive Performance Management framework to make sure no stone is unturned in considering paths toward preserving value for stakeholders:
The Larx team works with private equity sponsors and portfolio management teams to establish a baseline view of the income statement, balance sheet, and 13-week cash flow and then facilitates a discussion with key team members on defining overall objectives for the company and critical initiatives necessary to capture and/or preserve value across all dimensions of the business.
The 3-phase/3-week process is outlined below:
Conduct kick-off video conference with PE firm team and portfolio company management and exchange background financial & operational data
Facilitated on-line session addressing value creation & preservation opportunities across three performance dimensions:RevenueDirect costsSG&A
Updates, iterative reviews, and final version of the Value Preservation Roadmap for the portfolio company along with a communication plan to enlist support and provide guidance to stakeholders LARX DELIVERABLES
13-Week Cash Flow modelSummary of top-down issues and opportunitiesPortfolio company-specific stakeholder assessment (lenders, customers, employees)List of processes and functions requiring Best Practice insightsDraft strategy mapPre-read and Value Preservation workbook for attendees
Summary of Value Preservation workbook responsesCompany strategy map including strategic objectives and KPIsLarx Industry & Functional Best PracticesPrioritized issues, risks, and opportunities for creating and preserving valueInitial timeline for execution and impact(s) on 13-Week Cash Flow
Value Preservation RoadmapExecution plan, assignments, and gapsCompany objectives & KPIsEmployee communication planStakeholder impact assessmentRisks and mitigation plansPresentations to lenders and others as neededUpdated 13-Week CF & financial forecasts
Once the baseline and general opportunity assessment is complete, the management team participates in a Value Workshop to develop the key elements of the path forward, including:
- Strategic objectives and KPIs
- Best practices by function
- Issues, risks, opportunities
- Critical Initiatives to capture and preserve value
- Timeline to execute
Beyond, the workshop, Larx works with the PE sponsor and management to develop a detailed execution plan. Along with the plan are financial models to forecast and track expected results and detailed communications to audiences such as employees, customers and lender.
In these uncertain times, we have found our clients appreciate the ability to confirm the path forward for portfolio companies in 2 – 3 weeks.
If you desire more insights into how we can give clarity and comfort in your portfolio, we’re happy to assist.