Using experience and operational expertise to great effect in private equity

Something which often separates the good from the very best in private equity firms is that elusive experience and expertise.

While a private equity company might have some exceptionally wealthy backers behind them, this will all be for nothing if they don’t utilize their skills and experience wisely.

At Sun Capital, there are umpteen examples of this being put into place. The co-CEO of the company, Marc J Leder, has said on numerous occasions that one of the main reasons his company will opt to invest in another is if there is untapped potential, and if there is the ability for operational changes to make a difference.

The two factors almost certainly go hand-in-hand. One of the best ways to unleash potential in a company is to make operational changes but suffice to say, only some groups are in a position to do this.

Staying on the example of Sun Capital, let’s take a look at several of their acquisitions to highlight how investment needs to be shrewd.

As most people know, they have vast experience in the restaurants business. It means that when they purchase a new restaurant business, they can immediately implement change as they know exactly what works in the industry.

For example, with Johnny Rockets they had bought an established chain, but through their own prowess they were able to invest in technologies which could make their own operations much faster. While some will immediately point to a brand refresh as the main thing in this regard, they managed to slash food and drink preparation times which is probably more related to their huge knowledge of the industry.

Of course, it’s not just about improving cooking efficiency. In other industries, there are similar stories.

Another example could come in the form of Furniture Factory Outlet, which Sun Capital purchased earlier in the year. It would be fair to say that this Arkansas-based retailer is a reasonably big player in the home furnishings sector – having amassed 36 retail stores over the years. Their USP is the fact that they can offer value products which are priced much lower than competitors.

Immediately following the acquisition, the company announced that a combination of financial and operation resources would help this business improve even further.

It’s the latter point that we’ll concentrate on and if one again scrutinizes Sun Capital’s portfolio, it’s clear to see the reasoning behind this acquisition. They own hundreds of other home furnishing stores all over the world, with Shopko Stores, Dreams and ScS being three of the most closely related.

In other words, it’s clear to see that once again they can implement operational improvements that they know are going to work. Whether it is a particular promotions model, form of advertising or even just the way in which stock is handled – such changes can make a dramatic difference in a business which is already sizeable.

Again, even if a group had great spending power, one could argue that it wouldn’t be anywhere near as effective as such industry knowledge.

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