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From Rough Stone to Masterpiece: Private Equity's Carving Hands

Private equity is an exciting and fast-paced field, offering professionals a thrilling career path that requires strategic thinking, risk-taking, and a strong desire to succeed. Private equity professionals are like sculptors, chiseling away at blocks of stones to reveal hidden masterpieces within. In the same way that sculptors must carefully analyze the stone and determine the best way to shape it, private equity professionals have keen eyes for detail and abilities for spotting businesses with untapped potential and values. Just as a sculptor must be meticulous in planning with the right tools and techniques to carve the valuables, the right human capital strategy is critical to realizing the full potential of a portfolio company, and bringing in the right corporate executive is a key element of that.

Why corporate executives and industry professionals are crucial to the turnaround of private equity-backed portfolio companies? It’s all about their abilities to bring operational expertise and leadership skills to the table, they often come with extensive turnaround experiences, fresh perspectives and insights. Their extensive networks and industry knowhow allow them to spot emerging trends and potential opportunities, enabling private equity firms to make informed investment decisions and stay ahead of the competition. With the right team of executives and a strong investment strategy, private equity firms can unlock significant values and generate powerful growth return for investors.

To name a few dynamic cases on how great leaders drove turnaround with PE-backed portfolios,

·       Dollar General Corporation: KKR invested USD7.3 billion in Dollar General and brought in Rick Dreiling as CEO. Under Dreiling's leadership, the company implemented a series of operational improvements, including more efficient supply chain management and better inventory control. These efforts led to a significant increase in profitability, with the company's net income growing from USD29 million in 2007 to USD338 million in 2009, the year KKR exited its investment.

·       Yum China Holdings, Inc.: In 2016, Primavera Capital Group and Ant Financial Services Group invested USD460 million in Yum China Holdings, the China-based operator of KFC and Pizza Hut restaurants. At the time, Yum China was struggling with declining sales and market share. The company then brought in Joey Wat as CEO, who implemented effective changes to revitalize the business, including product revamp and improving store efficiency. These efforts led to a significant increase in sales and profitability, and in 2020, Yum China went public on the Hong Kong Stock Exchange with a market capitalization of over USD$18 billion.

·       Seven-Eleven Japan Co.: Seven-Eleven Japan Co. was struggling with declining sales and profits with net income fell to USD664 million in 2005. Thereafter, the company brought in Toshifumi Suzuki as CEO, who implemented strategic changes to revitalize the business, introducing new merchandising strategy, optimizing supply chain and improving store operations. In 2007, Seven & I Holdings Co. acquired a majority stake in Seven-Eleven Japan, and Suzuki continued to lead the company's growth efforts. Under his leadership, the company's profits grew by over 50% in two years. In 2010, Seven & I Holdings was able to exit its investment with a significant return at USD11.6 billion.

These track records demonstrate the essential role that experienced executives and a strategic investment model can play in driving the growth of private equity portfolios. In each case, the private equity firms brought in CEOs and leaders with proven track records of success and provided them with the resources and support needed to implement their vision for the company. The result was significant growth and profitability, which allowed the firms to exit their investments with substantial returns.