Truck Parts and Service | Heavy Duty Trucking, Aftermarket, Service Info
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Guest Column Is Measurable Management Really A Foreign Concept? biz". I was a little surprised at the interest ' consolidation' and 'private equity' had reacquired. Not surprising really, with high-profi le A players like FleetPride and TruckPro showing a continuing appetite for growth through acquisition, coupled with some big supplier names heading in the same direction. But one thing that caused me to pause by Bill Wade Wade & Partners t the recent HDAW meeting, I had the chance to catch up with a number of old pals and get a sense of the "buzz in the questions that most oſt en appear fi rst in fi nancial reports — questions that can't be answered with a simple "Because that' way it is done in heavy-duty." several of these deals, I have been able to identify a few common PE insights that will be helpful whether the equity is yours or someone else' Having been personally involved in was a common refrain from those either involved in (or considering involvement in) private equity partnership: "Th ose guys are really numbers guys. We're not sure they really understand our business." Really? What kind of business have we — Private equity fi rms typically fi nance acquisitions with as much debt (leverage) as practical. Th is instills a sense of urgency to liberate and gen- erate cash as expeditiously as possible. PE fi rms tightly manage receivables and payables, reduce inventories and question every expense. Th ey cancel lower-value discre- s: been in from the start? Ours was a "private equity" deal on day one; it's just that it was our private equity. As to being numbers driven, anyone who didn't concentrate on measurable results is no longer even in the conversation today. Th ere is no magic to the concept of private equity (PE). Th ey are simply investment pools searching for operations that are likely to provide a better long- term return than alternative investments (stock market, real estate, etc.). But as such, PE typically involves a — PE fi rms can act with speed, but usually employ rigorous analysis (discipline). Aſt er realizing the short-term cost benefi t of eliminating low-value activities, they can aff ord to invest in long-term value creation potential. Th is is the only way they earn tionary (pet) projects or expenses, investing only in those initiatives and resources (including talent) that contribute signifi cant value. very disciplined view of target opportuni- ties. Since they haven't heard all the stories (excuses) before, they continue to ask — PE fi rms intuitively and universally believe that targeted returns: by proving that they have positioned the company for future growth and profi tability. s the strong, eff ective leadership, not just management, is critical to the success of their investment. Th ey sometimes select a company based primarily on the strength of its team talent. Talent evaluations are swiſt ly —PE fi rms are genetically driven toward value creation, well beyond accounting tricks and unfocused cost cutting. Successful deals feature substantial operational improvements from the application of broad functional expertise. Th ese fi rms are in the trenches at completed. Th is is scary to many who may have been carrying dead weight based only on personal relationships. cost reduction, only in increased competi- tive advantage. As we move from being simply their portfolio companies investing in core operations as oſt en as they are cutting extraneous costs. In short, there is no intrinsic value in product/service sources to real problem solvers, the extra cash generated by the "private equity discipline" can provide the increase in value that should be our goal in the fi rst place. Note: For further insight on private equity and industry consolidation, see: "Some Th oughts on the Next Wave in Heavy Duty Distributor Consolidation" in the articles section at www.wade-partners.com. Bill Wade recently has published a new book titled Aftermarket Innovation. He can be reached at www.wade-partners.com. The views expressed in the Guest Editorial are those of the author and do not necessarily refl ect the opinions, beliefs and viewpoints of Truck Parts & Service magazine. 4 TRUCK PARTS & SERVICE | March 2012