Value Creation in the Middle Market

Kohlberg’s path to value creation begins with differentiated transaction sourcing capabilities, including what we refer to as our White Paper program of industry sub-sector research and transaction development.  Through this White Paper effort, our Investment Partners, working closely with a dedicated Operating Partner with expert sector knowledge, identify attractive sub-sectors within our five core industry verticals that match well with our sector views, the firm’s investment history and the skills and expertise of our investment team.  We then perform exhaustive research on the particular sub-sector to develop a proprietary investment thesis and, ultimately, a list of investment targets. Our teams then begin a proactive origination effort to secure a compelling acquisition candidate through which to effect the White Paper thesis. Although this process tends to have a longer gestation cycle, through it we are able to better control our deal sourcing destiny, smoothing out the otherwise opportunistic and episodic market deal flow with more relevant opportunities. In addition, our White Paper process focus allows us to align our transaction flow closely with our sector views and portfolio construction objectives, while also leveraging our up-front industry work to prevail in competitive situations. Value creation under Kohlberg ownership involves partnering with management to execute transformational strategies to enhance business efficiency, breadth, growth and scale. The specifics of these strategies are identified and quantified in due diligence and incorporated into a strategic plan to be implemented following the closing of the transaction.  A core tenet of our success in augmenting growth and profit in businesses is the consistency with which we execute optimization strategies across our target industry sectors.  In doing so, we leverage our long history and successful franchise to bring the necessary resources to implement an investment strategy marked by three themes.

Enhancement of Management Capabilities

Implementing business transformation requires exceptional management teams.  For some of our portfolio companies, assembling the right team involves adding, following the initial transaction, discrete functional expertise necessary to support the growth needs and expectation for business scale expansion called for in the strategic plan.  For others, often in corporate carve-out situations, building the appropriate management group requires broad-based senior level executive additions.  In all cases, the day-to-day involvement of a Kohlberg Operating Partner at each portfolio company, typically through a Chairman of the Board role, is critical to ensure a seamless transition from corporate or private ownership to Kohlberg’s. Our Operating Partners serve as a valuable mentor resource to management, lending operating execution and strategic perspective developed over many years running related businesses.

Operational Efficiency

Execution of an operational improvement plan is a vital component of value creation in the early phases of a Kohlberg investment.  Improvement initiatives are unique to each portfolio company, but share broad themes. Typically, our Industrial Manufacturing and Consumer Products businesses, the focus is on cost reduction through implementation of best practices techniques to streamline processes and improve efficiency. In investments across our three service verticals (Business Services, Healthcare Services and Financial Services), efficiency gains are typically achieved through industry consolidation and increased scale, centralization of process and implementation of technology to enable the Company to achieve best-in-class standards.

Accelerated Growth and Business Repositioning

The second phase of Kohlberg’s ownership is a focus on accelerated investment in revenue-building opportunities to create a superior, sustainable growth profile for the company. In each new portfolio company, a growth plan is implemented, frequently calling for savings generated through efficiency gains to be reinvested back into the businesses in the form of new product innovation and introduction, new market penetration and/or capacity expansion. In addition, in most of our investments, we will pursue and complete add-on acquisitions (our historical average is two add-ons per platform investment) that afford an opportunity to complement existing products and distribution, while also creating impetus for further synergy and cost reduction through efficiencies of scale.

© 2017 Kohlberg & Company, L.L.C.

Photography courtesy of C. Bernstein & MGF