Overview of Private Equity The Aerospace & Defense Forum - PowerPoint PPT Presentation

Overview of Private Equity The Aerospace & Defense Forum February 2019

Overview  Introduction to RLH  Private Equity Overview  Value of a Private Equity Partner  Evaluating Viable Companies 1

Introduction to RLH  Private equity firm with over $1 billion under management targeting high-growth, lower-middle market enterprises  Founded in 1982  Executed dozens of investments and generated annual returns in excess of 30% over more than 25 years  Consider $30 to $75 million equity investments in companies with revenues ranging from $30 million to $250 million » Healthcare » Business Services » Government Services 2

Introduction to RLH RLH Growth Formula DRIVERS Technology Demographics Regulatory Cultural SECTORS Business Government Healthcare Opportunistic Services Services MANAGEMENT Track record of growth and success Proven leader(s)/management ATTRIBUTES Key competitive advantages Sustainable opportunity VALUE-ADD Navigate the challenges of growth Experienced partner with management RESULTS At least 20%+ revenue/profit CAGR Ability to build strategic value 3

Overview  Introduction to RLH  Private Equity Overview  Value of a Private Equity Partner  Evaluating Viable Companies 4

Private Equity Overview Private Equity: An alternative asset vehicle that makes direct equity investments in private operating companies to generate superior returns for investors. Venture Capital: Fund start-up and early stage businesses using equity. Cover operating losses and / or fund research and development. Growth Equity: Provide expansion capital or shareholder liquidity for middle market businesses with a combination of debt and equity. Leveraged Buyout: Acquire control positions in established operating companies with strong cash flows using substantial debt and some equity. 5

Private Equity Overview Three private equity classes fulfill lifecycle of an operating company. Growth Equity Venture Capital Leveraged Buyout Characteristics Characteristics Characteristics Highest Growth Rate High to Moderate Growth Slow Growth Rate Risk: Risk: Risk: Concept Risk Execution Risk Financial Risk Capital Structure: Capital Structure: Capital Structure: All Equity More Equity w/ Less Debt More Debt w/ Less Equity Value Creation: Value Creation: Value Creation: Technical R&D Grow Revenue Pay Down Debt Innovation Grow Earnings & Margins Expand Multiple Drive Market Demand Expand Multiple 6

Private Equity Overview Three private equity classes fulfill lifecycle of an operating company. RLH Venture Capital Growing Middle Market Leveraged Buyouts (Development Risk) (Execution Risk) (Financial Risk) $1 BN $200 MM Growth rate maturing but still attractive $20 MM Profitable $0 Minority Ownership Majority Time 7

Overview  Introduction to RLH  Private Equity Overview  Value of a Private Equity Partner  Evaluating Viable Companies 8

Value of a Private Equity Partner An equity partner should provide: Strategic guidance build or buy, geographic expansion, new products or services, focus  guidance, not mandate  Corporate finance expertise optimizing capital structure: debt vs. equity  commercial banking relationships  investment banking relationships  assessment of acquisitions and exit opportunities  9

Value of a Private Equity Partner An equity partner should provide: Management recruitment and retention sourcing and evaluating candidates  compensation structures  credibility in attracting top talent  Board recruitment experienced senior talent: “ been there, done that ”  10

Value of a Private Equity Partner How entrepreneurs and companies should validate an equity partner Superior track record of investing Industry experience Attention from experienced principal Good references from CEOs Focus on similarly-staged businesses Shared business values 11

Overview  Introduction to RLH  Private Equity Overview  Value of a Private Equity Partner  Evaluating Viable Companies 12

Evaluating Viable Companies Equity Scorecard – Attracted to specific characteristics  Strength of management team  Attractive growth dynamics  Strong business fundamentals  Compelling industry attributes  Valuation and exit opportunities 13

Key Characteristics of Viable Companies Strength of Management: The most important criterion  Proven track record of success  Relevant industry experience  Characteristics: Passionate, Smart, Motivator, Integrity  Attracts and retains good employees  Personal financial commitment 14

Key Characteristics of Viable Companies Attractive Growth Dynamics:  Growing marketplace  New products or services  Geographic expansion  Market share expansion  Potential acquisitions 15

Key Characteristics of Viable Companies Strong Business Fundamentals:  Value proposition of the service / product offering  Differentiating characteristics  Attractive operating model & superior margins  Reasonable growth strategy  Established sales and procurement channels  Diversified customer and supplier base 16

Key Characteristics of Viable Companies Compelling Industry Attributes:  Size and growth characteristics of industry  Barriers to entry  Customer perceptions and preferences 17

Overview of Private Equity The Aerospace & Defense Forum February 2019