landing positions in private equity

Landing Positions in Private Equity

Mike Lorelli

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Your Pride Vs. Their Need

Your Pride:“Action oriented executive with 21 years leadership experience with Fortune 100 Allied Chemical. ”

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Your Pride Vs. Their Need

Your Pride:“Action oriented executive with 21 years leadership experience with Fortune 100 Allied Chemical. ”

Their Point-of-View:“21 years! Ugh! We want to exit in Year 4. . . Year 7 max. Please get this Rip Van Winkle out of my sight!”

“He probably takes 9 years to figure out what Google and Facebook people do in 3 years!”

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Your Revised “Pride”

Your Pride:“I’m a Fortune trained leader that has made a step change in the EBITDA CAGR in every assignment."

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Your Revised “Pride”

Your Pride:“I’m a Fortune trained leader who has made a step change in the EBITDA CAGR in every assignment."

Their Read:“Jesus!!!” Here comes my bonus!”O’Bama, please don’t tax carried interest!” This is our guy!

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Agenda

Positions History Value Creation Returns Getting the list of 1,700 down to a reasonable number The Major Players; The Most active Players. . . not the same list! The p.e. model p.e. compensation Results and Performance Measures The p.e.’s Plan The right mindset when dealing with private equity Marketing yourself to private equity- 3 strategies The right LinkedIn profile p.e. job sites A checklist of themes to weave in What p.e.’s say they look for Consulting angles

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Stages

Idea Up & Running Mature

VC PE

• Trailing EBITDA

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What position?

• Operating Partner • Portfolio Company CEO• Principal • Portfolio Company CFO• Originator • Portfolio Company C-Level• Associate• Analyst

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What position?

The ‘Deal Team’• Operating Partner • Portfolio Company CEO• Principal • Portfolio Company CFO• Originator • Portfolio Company C-Level• Associate• Analyst

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What position?

• Operating Partner • Portfolio Company CEO• Principal • Portfolio Company CFO• Originator • Portfolio Company C-Level• Associate• Analyst

“The Private Equity Book”

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Worse than real estate brokers in Darien, CT

1977: Kohlberg, Kravis, and Roberts leave Bear Stearns, forming KKR

1978: 80 ‘Leveraged Buyout Groups’ in US 2014: Estimated 2,700 around the world

1,700 U.S.

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Value Creation: operating experience a plus

100% Value Creation90%

80%

70%

60%

50%

40%

30%

20%

10%

0%18%

31%

51%

22%

36%

46%

39%

32% 25%

Leverage era (1980s) Multiple Expansionera (1990s)

Earnings growthera (2000s)

Operational improvementera (2010s)

Operational improvement Multiple arbitrage Leverage

Valu

e C

reat

ion

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WSJ: “Buyouts Leave Simmons Little Rest”

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Terminology

The providers of capital: Limited Partners, or LP’s- who are they?

The fund manager: General Partner, or GP, or p.e.

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Returns Well Out‐Performed S&P

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Percentage of Capital by LP typeLBO Funds

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Many ways to categorize the 1,700

By size• Large $1 billion+ revenues• Mid-market > $150 million • Small < $150 million

By sector specialty• Health care• Consumer• QSR• IT• Financial services• etc.

Net-net, do you bring a sector expertise? Or are you agnostic? Be realistic. . . the big ones will want major IB experience

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Excellent

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Don’t unnecessarily limit where you can play

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Top Fund ManagersRank Firm City Capital ($Millions)

1 TPG Capital Fort Worth (Texas) $50,553

2 Goldman Sachs Principal Investment Area New York $47,224

3 The Carlyle Group Washington DC $40,540

4 Kohlberg Kravis Roberts & Co. New York $40,215

5 The Blackstone Group New York $33,418

6 Apollo Global Management New York $33,813

7 Bain Capital Boston $29,402

8 CVC Capital Partners London $25,068

9 Hellman & Friedman San Francisco $17,200

10 Apax Partners London $16,637

11 Warburg Pincus New York $15,000

12 Cerberus Capital Management New York $14,900

13 Advent International Boston $14,519

14 Permia London $13,572

15 Oaktree Capital Management Los Angeles $13,045

16 Tera Firma Capital Partners London $12,249

17 Providence Equity Partners Providence (RI) $12,100

18 Clayton Dubilier & Rice New York $11,404

19 Charterhouse Capital Partners London $11,268

20 Teacher’s Private Captial Toronto $10,758

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Top 12 p.e. Investors in 2014more transactions = more Deal Teams = more hiring

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The LBO model

Purchase• 7.0 X $9m = $63• Cash 27• Debt 36

Sale• 8.0 X $14.1m = $113

• Debt 32• Proceeds 81

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The LBO model

Purchase• 7.0 X $9m = $63• Cash 27• Debt 36

Sale• 8.0 X $14.1m = $113

• Debt 32• Proceeds 81

= 3.0 X cash-on-cash

The p.e. / L.P Model Pelosi 2008 Fund

2008 2009 2010 2011 2012 2013 2014 2015 2016

AB

C D

E

F

GH

IJ

F

E

DA

BC

Sale

Purchase

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The p.e. / L.P Model Pelosi 2008 Fund

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

AB

CD

E

FG H I

J

F

E

DA

BC

Sale

Purchase

Invest Harvest

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p.e. Compensation

2% of managed capital• pays salaries, rent, and nominal bonuses

20% carried interest from profits on distributions*

* pre-Obama

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Performance Measures

Good Great Awesome IRR 20% 28% 33+% Cash-on-cash return 2X 3X 5+X Hold period 8+ years 6 years 3- years

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A typical 10 company fund result

2 out-of-the-park 1 triple 2 doubles 3 singles 2 the bank took the car keys

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Riverside Company

20% of the invested money will lost If less, we’re not taking enough risk Not sweat the duds, but rather the ones we missed

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The Funnel

300 teasers

100 books

7 LOI’s

2 due diligence

1 close

20 Meetings with Mgmt

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Who the p.e. wants to meet

Job Seekers

Deal Resource

Thesis-DrivenDeal Exec

Target-Driven Deal

Exec

Source: Andy Thompson, Notch Partners

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Options for Executives Working with Private Equity

Fund Commit-

ment

Advisorexpenses+upside

Deal Executive / Executive in Residenceretainer+upside

Portfolio Company Managementsalary+bonus+equity

Executive’s Income

Expert Network / Interim Executivehourly comp

Operating Partnersalary+bonus+carry

David Teten, www.Teten.com/executive

The Deal

Project NTL Sept 1st, 2007

Offer: $55 million for 75% of the company + $34 million debt, implies $107 millionBank Adj. +$4.0 excesses 2006 EBITDA

2007 Adjusted EBITDA 12,744 16,744 Sources Debt Multiple

EBITDA Multiple 8.4x 6.41x Debt Financing 58,000 3.46xOffer Price 107,333 107,333 new p.e. Equity 35,000 2007 2008 2009 2010Company Debt 34,000 34,000 Total Sources: 93,000 EBITDA 12,744 17,840 23,700 29,300Current Equity 73,333 73,333 Interest @ 12% (6,553) (5,645) (4,450)

Uses Taxes % 40% (4,515) (7,222) (9,940)Payment to 5 owners 55,000 Capex (2,500) (2,500) (2,500)

Current Owner Proceeds 55,000 Refinancing of Debt 34,000 Debt Pay (6,788) (8,333) (11,591)Estimated Fees and Expenses 4,000 Cash Flow 0.0 0.0 0.0

new p.e. $ 35,000 75% Total Uses: 93,000Equity Rollover 11,667 25% Cash 0 0.0 0.0 0.0Total Post-Deal Equity 46,667 100.0% ? equity Debt 58,000 51,212 42,877 31,286

196,039 Year 3 Ownership Net Debt 58,000 51,212 42,877 31,286

Management: of 15.0 pts 2.5%now 2011 new p.e. 63.8%Mike Lorelli 0.0550 672 10,782 Current Owners 21.3% Exit EV 142,720 189,600 234,400CFO 0.0300 367 5,881 Immediate skin in game 2.5% Exit Equity 91,508 146,723 203,114EVP 0.0200 244 3,921 3 year option program 12.5% Equity to p.e. 58,336 93,536 129,485

V.P. and GC 0.0220 269 4,313 100.0% Equity to 5 owners 19,445 31,179 50,920R&D 0.0060 73 1,176 Total cash to 5 owners 74,445 86,179 105,920Sub. GM 0.0060 73 1,176 p.e. cash

CMO (new hire) 0.0060 73 1,176 IRR (5 years)VP Supply Chain (new hire) 0.0050 61 980 Exit multiple 8Total Management 0.1500 1,833 29,406

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The Plan

Fleshed out approach for how value will be created• Strategic and operational blueprint

Rapid change principles• 80/100 rule: an 80% solution that’s ready to go now,

beats a 100% effective, theoretical solution, ready to go in 4 months

Make capital work hard• Re-deploy underperforming assets

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Private Equity vs. Traditional C-level

Greater emphasis on time (driven by Hold Period)

Tenure can be compared to ‘the half-life of uranium’

Better fits are executives who:• Exhibit “Jack be nimble, Jack be quick” temperament• Be a Jack-of-all-trades• Work on scarce resources

– you may be making the run to Staples for supplies today– you write the Strategic Plan (no Corporate Staff)

• Love tight quarters– You may be sharing a pillow some nights with the p.e’s Deal Team

Private Equity vs. Traditional C-level

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You will land by one of these 3 possibilities:

• Marketing Yourself • Being Found • Start w Service Firm• Be a deal originator • your LinkedIn profile • turnaround firms

- Bring them a deal • join LinkedIn • consulting firms• Solve a PortCo problem private equity group • other service providers

- Show you can be anOperating Partner

• Get in bed by going onone of their Boards

• Meet people known todo p.e. assignments

• Get the word out:eBlast to Pitchbook

• Fill a CEO/ CFO/ CXO need

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You will land by one of these 3 possibilities:

• Marketing Yourself • Being Found • Start w Service Firm• Be a deal originator • your LinkedIn profile • turnaround firms

- bring them a deal • join LinkedIn • consulting firms• Solve a PortCo problem private equity group • other service providers

- show you can be anOperating Partner

• Get in bed by going onone of their Boards

• Meet people known todo p.e. assignments

• Get the word out:eBlast to Pitchbook

• Fill a CEO/ CFO/ CXO need

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You will land by one of these 3 possibilities:

• Marketing Yourself • Being Found • Start w Service Firm• Be a deal originator • your LinkedIn profile • turnaround firms

- Bring them a deal • Join LinkedIn’s • other service providers• Show you can be an Private Equity Group

Operating Partner• Get in bed by going on

one of their Boards• Meet people known to

do p.e. assignments• Get the word out:

eBlast to Pitchbook• Fill a CEO/ CFO/ CXO need

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The Importance of a Killer LinkedIn Profile

50% of candidates are found via LinkedIn

Or they will at least check you out!

below average

slightly above average

Above average

Very Good

Excellent

OutstandingKiller*

You and 9,999

You and 4,999

You and 1,999

You and 999

You and 499

You and 99

390 million LinkedIn members

39,000 serious C‐Level Candidates = .0001

You and 199

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The Prime Pieces of Real Estate

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Must words to get into your headline:

Signal your level and (sought) position “Private Equity” or “Private Equity Portfolio Company” Two, or three, or four sectors

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Summary Section Keywords

Private Equity Portfolio Company CEO or CFO or CMO or CIO Deal Originator EBITDA growth Revenue Acceleration Margin Enhancement Multiple Expansion Deal Origination Topgrading New Channels/Markets International Expansion Global Footprint Lean Manufacturing Turnarounds Exit Strategies

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You will land by one of these 3 possibilities:

• Marketing Yourself • Being Found • Start w Service Firm• Be a deal originator • your LinkedIn profile • turnaround firms• Bring them a deal • join LinkedIn • consulting firms• Solve a PortCo problem private equity group • other service providers• Show you can be an

Operating Partner• Get in bed by going on

one of their Boards• Meet people known to

do pe assignments• Get the word out:

eBlast to Pitchbook

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Start with a Service Provider

Turnaround• Alvarez & Marsal• Alix Partners• Many quality boutiques

– Not necessarily Bain or McKinsey

Consultants with high p.e. activity

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. . . 4th important possibility

“Hang Out”Websites with p.e. job openings:• www.PrivateEquity.com• www.GloCap.com• www.PrivateEquityJobs.com• www.ACG.org

and go to local Chapter meetings

PrivateEquity.com

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Glocap.com

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PrivateEquityJobs.com

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acg.org/global/acgjobsource.aspx

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Your Pride Vs. Their Need

Your Pride:“Action oriented executive with 21 years leadership experience with Fortune 100 Allied Chemical. ”

Their Point-of-View:“21 years! Ugh! We want to exit in Year 4. . . Year 7 max. Please get this Rip Van Winkle out of my sight!”

“He probably takes 9 years to figure out what Google and Facebook people do in 3 years!”

55

Your Revised “Pride”

Your Pride:“I’m a Fortune trained leader who has made a step change in the EBITDA CAGR in every assignment."

Their Read:“Jesus!!!” Here comes my bonus!”O’Bama, please don’t tax carried interest!” This is our guy!

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What p.e.’s Say They Look For** your actual mileage may vary

Fit; chemistry.• Organ transplants frequently get rejected

Industry, or at least Sector experience Experience in a comparable growth stage environment as the PortCo The combo platter of:

• Hands-on experience in a resource constrained environment• Best-practice training from a larger company

Functional expertise in the company’s leverage points Understands cash flow. Covenants.

• “Thou shalt not violate the max-capex covenant”

Scrappy

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What p.e.’s Say They Look For

Prior p.e. experience Track record of repeated success Agility

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Build in Themes From This Checklist

Example of how you created value in nano-time, and with scarce resources. Think “The Martian.”

You drip of experience in the sector of this Portfolio Company You have private equity experience (or at least totally ‘get’ the model) You killed the numbers in a situation at the same “maturity’ stage

(startup, emerging, mature) You bring ‘best practice’ from an acclaimed (or at least large) co. You were parachuted into xyz division and recruited/ assembled the

success team. You did “a Matt Damon” in a resource constrained environment. You know how do make major operational improvements

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Curve Balls

You will be asked about co-investing:• “How big of a check would you expect to be writing?• What % of your liquid net worth does that represent?

Submit to a Personnel Assessment • (“Sure, I assume I’ll get a copy.”)

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Other Points

Half the time they acquire a company, they recruit a new CEO• The founder/ owner/ entrepreneur is cashing out• CEO not up to the task

Half of the replacements are not standing by month 9 Cost to p.e. is huge:

• Lost a year in the hold period• Severance• Round II recruiting and acquisition fee

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Other Points

Half the time they acquire a company, the replace recruit a new CEO• The founder/ owner/ entrepreneur is cashing out• CEO not up to the task

Half of the replacements are not standing by month 9• Redefines the half-life of Uranium!

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Other Points

Often the CFO is not capable of p.e. standard and is replaced Expect the CEO is terrific at recruiting a Team. Quickly! Operating styles of p.e. firms differ widely

- Delegators - Command & Control - Collaborative

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Other Approach Tips

Target firms that have your sector specialty Do NOT offer free consulting.

• But offer (once) to be a (free) set of eyes on a Book

Bring them a Deal (ugh) Be the perfect person for one of their Boards Be a deal resource (Falconhead: Rostam) Be a (paid) consultant

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10 Consultant Angles Into ‘The Vault’

1. Write their Strategic Plan

2. Do the Category Segmentation

3. Provide a killer Competitive Assessment

4. Work with The Management Team on ‘The 100 Day Plan’

5. Come up with Rapid Change Ideas

6. Margin Enhancement ideas

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10 Consultant Angles Into ‘The Vault’

7. Fast Revenue Ideas

8. Show them how to build out the geographic footprint

9. Be the meanest about sucking the eyeballs out of the competitor1. making them bleed is a winning strategy

10. Show them who they should acquire, to:• Add new markets, fast• Add new channels, fast• Add new products, fast• Build the geographic footprint, fast

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Top Private Equity Recruiters

Korn Ferry Spencer Stuart Notch Partners (exclusively p.e.) Russell Reynolds Egon Zhender Heidrick & Struggles GloCap Skill Capital

The Big 5:reach out to a recruiter in your geography who lists p.e.

send an email and suggest getting together best way to get in their database

The Trades

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Lots of Private Equity Board Opportunities

7,500 reported private equity portfolio companies X 2 = 15,000

Plus another 7,500 ‘unreported’ companies X 1 = 7,500

= 22,500 Board roles

AeroGrow Board of Directors Competency Map -after

Mktg/D2C Sales Ops Finance Leveraged Co. Int'l Governance The Science

Michael Michael HenryRandy Mike L Mike L HowardMike L Mike L Richard Fred MortonMirtchell Jack Mike LJohn Mike L Richard KenJerry Jack Mitch, Wayne Sylvia

KenJerry Terry MitchJeff Jerry Wayne

Mike L

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Board Skills Map

Resources

• Private Equity Info ($85 for 1 month sub, to

$895/yr.)– www.PrivateEquityinfo.com

– Andy Jones– ajones@privateequityinfo.com– (512) 771-3943

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Print This 1 Page

• Marketing Yourself • Being Found • Start w Service Firm• Be a deal originator • your LinkedIn profile • turnaround firms• Bring them a deal • join LinkedIn • consulting firms• Solve a PortCo problem private equity group • other service providers• Show you can be an

Operating Partner• Get in bed by going on

one of their Boards• Meet people known to

do p.e. assignments• Get the word out:

eBlast to Pitchbook

72

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Visit www.linkedin.com/in/mikelorelli

Mike Lorelli(203) 655-2444MKLorelli@gmail.com

Thank You!  Questions?

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Michael K. Lorelli15 Norman Lane

Darien, CT 06820

Office:     203 655‐2444

FAX:        203 655‐6916

Email:     miklorelli@aol.com

Website:  www.Lorelli.net

www.LinkedIn.com/in/MikeLorelli

http://www.gplus.to/MikeLorelli

Mike Lorelli’s 30-year career spans a wide range of consumer products and services, andB2B categories, with responsibilities for both domestic and international units. His years as aline-operating manager have been with Fortune 100 companies: PepsiCo and Bristol MyersSquibb. For the last 14 years, as CEO, he has led revitalizations and turnarounds for privateequity firms. For example, Dr. John Rutledge, Chairman of Rutledge Capital, will say:“I would invade China with Mike alone in a rubber boat.” He is presently An OperatingPartner at Falconhead Capital, and Executive Chairman of the Board, Rita’s Franchisecompany, the nations leading Italian Ice and frozen custard chain.

Mike has also led CEO engagements for Riverside Company, Rutledge Capital, andPouschine Cook Capital.

Mike’s assignments at PepsiCo included CMO for PepsiCo’s beverage sector, President ofPepsi-Cola East, a $1.5 Billion operating company, and President for Pizza Hut’sInternational division where he led a “global or bust” charge, resulting in expanding theCompany’s presence from 68 to 92 countries, surpassing McDonalds in country count.During his PepsiCo tenure, he is given credit for authoring the soft drink company’s “BigEvent Marketing” strategy, which coupled the product with leading- edge events inentertainment, sports, consumer electronics, movies and home video.

Mike holds a Bachelor of Engineering degree in Industrial Engineering from New YorkUniversity, and an MBA in Marketing from NYU’s Stern Graduate School of Business. He hastraveled to 58 countries, is an avid runner, claims to excel at no sport, is an active privatepilot, member The CEO Trust, former member of YPO, and author of the childrens’ best-seller “Traveling Again, Dad?” with profits donated to childrens’ charities. Mike is also aDirector of CPKelco.. He holds a Masters Professional Director Certification from TheAmerican College of Corporate Directors, and is also an NACD 2011 Masters GovernanceFellow. He is also a registered speaker with Vistage International.

Leading The World In Burn Care

Michael K. Lorelli