YouSaid · the spoken record

Pete Stavros

lines on the record: 45
first: 2022-09-15
most recent: 2022-09-15
sittings or episodes: 1
sources: podcast

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“My favorite aspect of private equity, which ties into why I'm optimistic about the asset class, is the governance structure. If we want to drive change through the business world, you could do it company by company. You could try and go convince one by one, do something different, whether that's for climate or labor or what have you, or in a more concentrated way, could you convince Blackstone Carl, TPG, Apollo, Ares, Warburg Pinkus, Bane, a handful of companies which each control half a million million employees? That is what I think is exciting about the opportunity ahead of our industry in the next 10 years, is can we all get aligned on key climate and labor issues and drive real outcomes? Private equity is all about aligning incentives and driving change. That's what the industry was founded on. And if we could put that to work on some key societal problems, which, by the way, will also deliver better returns, that would be my favorite aspect of PE and what I'm most up.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Granting an opportunity can unleash an emotional response that is surprising. Again, it's not going to solve all your problems overnight, but at least a third of the time its tears even just on the rollout of the program where people are shocked to be recognized. My opinion, no question if we can get this right as an industry, it's going to be good for workers, good for society, and better for returns because I don't think we're allocating equity in a smart way.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Number one, I think we as a society are massively misallocating resources in overpaying the top people. You can make that case about private equity, about investors like me, about CEOs. We are not achieving optimal aggregate outcomes. As Comp goes up, I do think performance goes up. People are less likely to quit. It levels off faster than we think that they have enough because people don't really work for money. And then I think performance declines. People get risk averse. If somebody's looking at a huge path, they just don't want to screw it up. I think private equity is making a mistake by aggregating all the economics in such a sliver of the company. We would all be better off as investors put aside the good to society by more evenly distributing it because the senior people are going to quickly tap out in terms of the incremental motivation through more money. And the people deep in the organization who have many times never felt respected, never felt recognized in their jobs. Just the active”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Been this long history in private equity of aligning yourselves with the management team. We know there's a big income divide. How much do you think it impacts the performance of the company when it's the employees below those management ranks that are rewarded with equity?”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Hundreds of workers in a plant who never get told anything in a typical company. This is confidential. It's not going to be public. You need to stay off social media. You can't talk to anyone about this. That level of trust is a small example of what we try to create in these companies. I thought that was a cool moment. And then when we got into it, obviously incredible excitement, still a little bit of disbelief, but tons of tears of joy, hugs. We had some food trucks brought in and we ended up staying in the parking lot for hours and hours and hours talking. And all of the stories people who were going to get out of debt, pay off their home, be able to invest for the first time, help disabled grandchildren. What was also remarkable is within 24 hours, many of these folks had not had wealth before, were turning to, what can I do now? People were making commitments to help fund the drilling of freshwater wells in Africa and giving to their church very special group of people in this company.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“That was the announcement of that pool I mentioned earlier for the 600 workers who weren't in the equity plan of what that would mean for each of the employees. And what we did, first thing was we spent the first five or ten minutes recounting the journey. And you might ask, well, why would you do that? We wanted to make sure it sunk in that you earned this. These are folks who never had something like this. And before we got into the numbers, we wanted to review. Revenue was up 120%. You took all this market share, lead time advantage versus the competition, gapped out massively. Despite the 120% revenue growth scrap only grew 7%. Look at what we did with working capital. Look at what we did with safety, what you did with all of these things. We spent a good 10 minutes on that. And people knew something was coming, so there was a little bit of, can we get to the action? But I think that was important. The next thing was sharing that the company was sold. We'd signed a deal. This was a Wednesday. It wasn't going to be public till Monday. This is going to sound like a small thing. That's a big deal to people when you have.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“You shared a video with me of being there at the plant when the CEO and you started sharing what these economics were going to be that were flowing to the workers. And we'd love to hear what that experience was like”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Tax help to make sure people appropriately and timely file their taxes. We did some of that work, as I said, along the way, but at exit, you really get people's attention because there's big dollars flowing and they're more likely to engage there. Those would be some of the takeaways.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Key takeaways would be be patient. It takes a long time. And not only does it take a long time, but keep in mind how much water is under the bridge between management and worker. It's not like you're going to do this and trust is going to magically appear overnight. As an example, even after years of working hard on this, when the leadership team during COVID said, look, safety is a core value or it's not. And here it is. And as a result, there's going to be hand washing stations and temperature guns at the door and you're going to wear a mask. People flipped out over that. The CEO was like, golly, how much more could I have done for the workforce between ownership, air conditioning the plant, new break rooms, cafeteria, haven't I earned some trust here? It's those moments you just got to remember generations of conflict. It's not going to change overnight. So that would be another takeaway for me. I think we've gotten it right on the back end in terms of when we sold the business prepaying for financial coaching with Goldman Sachs, pre-paying for”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“The results have been great. They are bifurcated between leadership teams who just believe and they are willing to put years of work into this. And in those situations, you see cultures transformed. And then there are some who rolled it out. They did it, but there wasn't the financial education, the information sharing, all this effort around engagement. And the results are more modest. Interestingly, there's not that much in the middle. We haven't had that many of. It kind of worked. It was Ingersaw Rand where the quit rate went from 20% a year to 2% and the engagement scores went from the 19th percentile to the 90th. Total transformation. Took nine years. In our experience, you have those are the CHIs or you have ones that are kind of coincides. I attribute that related leadership.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“So we've got about 20 private equity firms signed up. And by signed up, I mean they're committed to doing this at least a few times in their portfolio, following our standards and then sharing some data back to the nonprofit so we can track where's the money going.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“So we have 900,000 employees. If we were to scale this across all of our businesses, that would be really impactful. But what if the top 20 private equity firms did it? What if the whole private equity industry did it? You'd be talking about transformational change. So that was exciting. And then there was the risk side of, geez, if we don't collaborate, we've either stepped in potholes that we'd rather other people don't, or very nearly stepped in potholes that could have really been bad. So that was how our thinking went. And then as we engaged on that idea with other organizations, whether it was nonprofits like Ford Foundation, Rockefeller Foundation, banks, Goldman, Morgan Stanley, really all the banks were excited about this, McKinsey, Ianwy, Deloitte, unions, labor officials, pensions, everyone seemed to say, if we could really make this work, this could be something. So why don't we all work on it together? And that was the formation of ownership works.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“We started getting phone calls from public companies, families, other GPs saying we think this is a good idea. We've thought about it. We've tried it. How have you gotten past SEC regulations or tax accounting challenges? How are you administering these programs? How do you ever communicate it in a way people actually understand it and value it? A million questions coming in. We decided that there could be real benefits to collaborating because this is very hard to do and we don't have all the answers. There could be risks to not collaborating. One of our peers called and said, hey, we're going to do this, take a worker in one of our factories who makes $40,000. Like, how much should that person invest? And as I mentioned earlier, one of our core beliefs is that should be zero. We don't want to be pushing risk onto people. And you can imagine how bad it could be for the private equity industry, the investment industry more broadly if workers start risking capital and deals go bad. We saw opportunity for collaboration. We saw opportunity for massively scaling the impact.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“In debt with warrants because all the companies go to the employees. If you did that, you paid no income taxes as a company. And as a seller into an ASOP, you could basically avoid capital gains. I was totally fascinated with that. Spent a bunch of time studying it when I went to business school. This is what I spent my whole second year understanding. Fast forward to when I got into a leadership position at KKR, I started experimenting with broad forms of ownership, the first one being a manufacturing business where we were looking for different ideas of how to improve retention. starts with obvious things, wages, benefits, scheduling, work conditions, safety, and then extended to let's try ownership. Once again, it's not like you did that and overnight things change, but it gets people's attention. We started that about 12 years ago, extended that across our entire industrial portfolio over a period of time. So we've done it maybe 12 times with manufacturing businesses. And then in total, today have 25 live cases of this across all of.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“So, meaning a company sold, you need to disperse all of these funds. How does that get done? It used to be on the phone and it was all voice confirmation of wires. And that was my job for like two days. I did all these wire transfers. And so I'm on the phone with the bank. And then I'm on the phone with people receiving the wires in their bank and we're confirming account numbers and amounts. When we were doing the confirmation, the assistant treasurer was just overcome with emotion of what this was going to mean for his life. Six hours earlier had gotten off the phone with the CEO and was like, yep, got the X million dollars click. That was a moment of, wow, this is so impactful. The deeper it goes. And you just start to think about how motivating it is and how rewarding it is, the further you go into an organization. The second thing I worked on was an Aesop, an Aesop is this 1974 law the government wanted to encourage broader ownership. So if you shared 100% of the common equity, which is one of the challenges with ESOP. So all other institutional investors can only be really”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“My dad was a construction worker. He operated a road grater at a small construction company in Chicago. And his dream was always profit-sharing. There was a lot of conflict and incentive misalignment that he highlighted to me as a kid. If you make $15 an hour, all you want are more hours. That's all you care about. And ideally some overtime, as long as it's scheduled in a fair way. And the employer wants exactly the opposite. So it was nonstop fights over hours that led to strikes that we lived through and lots of just bad behavior. And my dad always thought profit sharing was the answer. Alignment. My dad would say, shouldn't I care about quality, cost, doing the job right, on time, but I don't. That was the early seed in my mind of why this could be important. And then if you fast forward to the first investment job, I had two things happen. The very first thing that this firm had me work on was a closing funds flow. They don't really do this anymore, but 20, whatever years ago, funds flows were all made.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd love to talk a bit about this ownership idea. Got a lot of press this time around. And when we were chatting, I learned that you've been doing it for a long time. Why don't you take me back to how this idea of extending ownership beyond just management ranks got started here?”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“At the same time, many others did. There was reason to believe this could be the best thing for our investors to engage with them on an exclusive basis. And we think they could pay a market clearing price and it'd be the right thing for the employees.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“We had a lot of inbounds from strategics, from financial sponsors, from family offices, you name it. We got a lot of inbound interest on the business. Obviously, we're fiduciaries, so we have to seek out the best outcome for our investors. Having said that, given the culture that was built, it's not hard to believe that the people who value this culture are the ones who are going to pay the high price. So somebody who's maybe more of a slash and burn corporate bire, I'm going to make this up. We didn't have one of those in the field, but they're not going to pay the winning price anyway. So when a new core comes along and you look at how new core operates, how they treat their people, their safety record is legendary, their profit-sharing program. If you look at their financials, I think their manufacturing plant employees made last year on top of their wages like $35,000 in profit sharing. A lot of money. Now, that was an epic year for steel. I concede, but still, that's a philosophy that you don't see everywhere. So when NUCOR came calling,”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it was three and a half percent of the company in options of the 800 folks, maybe the top 200, got outright grants, made meaningful investments in the company, and were traditional management equity plan participants, as you would normally think of it. And then the other 600 would have been in this pool, which was around 3,000, 3.5% of the company, something like that.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“A few different success factors we've noticed for when does this go well? Number one, the leadership team has to be super passionate. If the leadership team is like, I'll do it just because you're telling me I got to do it, Pete, I'll do it. Don't bother. It's not going to work. You're not going to change the culture. This is a second job for them to drive engagement and do all of this work. That's one commitment to the leadership team. Two, you've really got to look at how do you make this a meaningful wealth creation opportunity for people. Sometimes you'll hear folks say, we gave $500 a stock. I wouldn't bother. I would give a cash bonus. For this to work, people need to see a path to at least six months of their income with upside, hopefully a year of income on average. And then the third thing I do think you need some degree of stability in the workforce. It's hard if you've got a retailer that is churning their employee base 100% a year and you show up starting about five-year plans. That's a difficult dynamic. So we had an unbelievably committed leadership team so passionate about this. When they were rolling out the programs,”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“That the company has placed on my shoulders, and together we own this company and where we're headed. It's all of that stuff together. It's not just you hand out stock and people all of a sudden change behaviors. It's a lot of work, a lot of communication, financial education. We did financial literacy training with Operation Hope. And then it's over a multi-year effort that you see behaviors change. This is not a quick fix. This was a seven-year journey for us. Ingersoll ran another great story around engagement and ownership was a nine-year journey.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Made, and we didn't talk about this, but there's a whole program. This was the first time we piloted it where we turned over some rights to the workers to determine where we invested money. And what was really fascinating about that was they asked for investment that all related to health and wellness, which we did not anticipate and didn't even piece together until it was years of first, we need air conditioning in the plant. Many manufacturing plants are not air conditioned in the country. And this was central Illinois, really hot in the summer, and that was contributing to safety and quality problems. So something we would have done anyway, but that was the first thing they wanted. Then it was build us a cafeteria with healthier food options. Then it was build us on-site medical clinic. It was all health and wellness related. Now we're working on making that more programmatic where we have a belief that employees, if they can direct their own health and wellness, are going to engage with it more, as opposed to a company saying free gym membership, which people may not want. It's all of these things that create an ownership culture, which is an overused term. But how do you get people to feel like I own my outcome? I own the response.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Up, but why are my wages up five or seven? Or why is it not 12? The more transparency you commit yourself to, and if you operate in that way, you just need to be prepared to answer questions. While I'm on the topic of wages, there are some core principles around how we do ownership. It cannot be in exchange for wages or benefits or wage increases. Last year, wages were up 12.5% the prior year, 7%, so that wages were going up at a rapid clip. So this was not in exchange for that. And you can't ask people who make less than $100,000 to invest in the company. It needs to be an entirely free incremental benefit. This is not about shifting risk onto workers. Over the years, we paid four dividends. Those dividends amounted to about $9,000 per employee. That is just a signal of this is real. You are actually going to participate in this, and you're not selling any stock. This is just a dividend. So the sale will be much more meaningful than this. But it's those moments of, wow, we're getting more information. We're having a voice in what's going on. We're getting these dividends. I'm seeing the investments being...”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Told people they would make if we hit our base case. And we said, on the one hand, it's not a guarantee. On the other hand, we really hope we could do much, much better than this. But if we do this, everyone here is going to make at least $15,000. That would be our hope. Obviously, we did much better than we ever thought we would do. So the end payouts ended up being $175,000 on average, and we had hourly workers and truck drivers make almost a million dollars. So it ended up being far beyond what anyone thought was going to be possible. The work we've done with Gallup and all the data we have indicates that ownership can impact retention. People will be less likely to quit because they'll say this could be a meaningful payout. I want to see how this goes. But it's all the other things added onto ownership that drive engagement. So it's the quarterly owner meetings that we do. And during COVID, we did monthly owner meetings. They saw our revenue, our earnings, our growth, which may not sound like a big deal, but when you show up and you say, great news, revenue was up 12%. You're going to get questions.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Back in 2015, day one, we closed the deal, we show up, and we announce we're going to do a bunch of different things at this company, invest in the facility, invest in you, and we start to lay out what these programs will look like. And by the way, you're all going to be owners in the business. The way we did it here was we set up a pool of options for all of the folks in the distribution centers, in the factory through which they would participate. You might ask, well, why would you do that versus just giving everyone individual options? It's administratively more difficult to do the latter. Although we do do it, and the turnover was high. So if there's high turnover and we give you documents and you sign them and we sign them and then you leave, and we got to go chase you down and close out your account and then issue new ones when you don't have a lot of stability, it's hard upfront to do it that way. So roll out this program. And as is always the case, after you roll it out, people say, I don't understand it and I don't believe it. You're the fourth product reform to show up. Come on. We're going to have this big payout at the end. I just don't believe it. We're very careful to underpromise at the outset. So I think we talked about it.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Deployment making the investments, we try not to call the market where it's like, well, now's a bad time to invest, and now's a good time to invest, and now's the time to go heavy in tech. But don't do industrials. No one knows how to do that is our belief. So we try and evenly deploy a fund over time, over four or five years, and diversify by sector. Likewise, on the exit side, once we've achieved 80% of what we came to do, we start to head for the exits. As long as the markets are reasonable, we're not trying to say, well, now's the perfect time to sell, but as long as you look at the markets and say it's a reasonable time to sell or take a company public, and we've done 80% of what we came to do, we exit. That's as good of a philosophy as we've found on the exit side.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“How do you decide in a situation like that when you think about selling? You mentioned at the onset, you have the separate core fund where you're going to own things for 15 years. Things are going really well. This is a business that clearly does well in private equity hands in this whole world of continuation funds and all this. How do you think about the exit?”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a leadership tool that we borrowed also from Toyota. Hoshin Connery is the official name, but it's now known more broadly as strategy deployment or policy deployment. People call it different things. That is a way of cascading priorities into an organization. How you prioritize and then if the priority, let's just say one of them's scrap reduction, how does that cascade down to individual plants, leaders, shifts so that it all adds up to what you think you can get? There's a leadership tool we use to do that, and it is as you would expect. You go after the biggest opportunities. It's constantly paradoing like, how can we get 80% of the results without drowning the organization and priorities? Because if you have 12 priorities, you're going to achieve none of them. It's got to be what are the critical few that you're going to get this year.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Not really because you have to move so quickly to win in this world so you have clues, but you don't have the access to data and the time if you're going to be effective in winning these assets to be like, well, I got to get to the one decimal place. How much money is there in scrap? How much could we lower inventory? How much faster could we accelerate growth and market you're gaining, and some of which is unknowable. The market share gains we drove in part were lead time reductions and knowing how much you could shrink lead times down relative to the competition, you could analyze that forever and you just need to get into it.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Involvement from the people who have made the investment, who chair the board, who sit on the board, to also be in the business. By the way, makes the board meetings way more productive when people are like, I know exactly what you're talking about. So we think it's important, and in terms of return on time, it depends on the magnitude of the opportunity. So in a situation like this where we were like, oh my gosh, if we could really unleash the full potential of the business, this could be an epic deal if it was more on the margins. We can get a little bit. I'd probably opt more towards an outside non-KKR resource.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, in terms of how we get engaged, we do a lot of work to try and identify the opportunities. So we will say we see X dollars or X percent opportunity in scrap. And the approach with the leadership team is often, you can't tell people what to do because you can't hold them accountable. So what we try and say is here's the opportunity we see. All we care about is getting the opportunity. And we want to get it in the right way. We don't want to do a slash and burn thing or something that's not going to stick. So we want the capability to be embedded in the organization, but we do want the results. And if you want to do it yourself or if you want to go hire McKinsey or if you want to use Capstone, we have people internally. We're flexible. We just want to get the outcomes. And that way you get ownership while having people feel like they're accountable to an outcome. Then in terms of how directly involved we get, it's hard if it's all non-DEAL team resources. The deal team runs the board meetings. Everyone knows the investors are ultimately accountable and therefore the leadership team is accountable to the investors. So I do think it's helpful if you have an”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Curious how you think about the resources that you bring to bear into these companies in the sense that if you've got a business that's been running, you're bringing in new management, now you're talking about outside advisors, different consultants. How do you think about where you and your team are spending time in these businesses compared to going off and looking for your next deal and just letting the management team run with it?”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Dove brought in consultants who worked with us in little focus groups made up of supervisors, hourly employees, and worked through what's not working, what makes you happy in your day, what doesn't, where are we having challenges, what would make your work easier. Then we do a lot of Kaizen. I mentioned this earlier. We participate in those. We expect the leadership team to participate in those. And that involves everything from I spend time on the road riding with truck drivers, making deliveries of garage doors to working in the factory one week on how we're loading doors, how can we do it more safely, more efficiently, make it easier for the driver on the other side when he or she is making a delivery to unload the doors to how can we improve quality.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the first thing we always do is just to do a baseline survey. So, you just do an engagement survey and see how people are feeling and what their concerns are. And then you do a Pareto analysis on the 80-20 of what are the big issues, and then you commit yourself to changing the way the company operates to address some of those issues. And then you create a do loop of more feedback, more action, more feedback, more action. And over time, people feel invested in. They feel like they can trust the leadership team. We're in this for the long run. We're willing to invest in the business, invest in them. That's a big part of it. If you talk to the CEO of Gallup, Jim Clifton, he would say, the number one thing on engagement is people who supervise other people. Are they getting feedback and are they acting on it? That's everything. You can ask very sophisticated questions and long surveys. That's all that matters. So we spend a lot of time on that. We brought in a culture change organization called LRN, this brilliant guy, Dove Seideman, who wrote a book, How, the concept being how you do everything is really what matters.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“So you mentioned when you were doing your diligence on the company, you walked into the plant and the eyes of the employees may not have lit up. It's one thing to say you want to create all these operational improvements. What did you do to get the culture changed in such a way that people would be engaged and be excited about the changes you wanted to make to drive financial performance?”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Over five years, that's a lot of people. She brought in new help there. There was relatedly a big opportunity in scrap and rework. And they made quality products, but inconsistently. And it's interesting how much you will find parallels between safety issues and quality problems because they both speak to the process in your plants. So we brought in some operational help. We brought in some marketing talent. There was a good sales effort, probably not as much around strategic marketing. So we brought in people to help there, filled out the board with a mix of people who brought operational skills, functional skills, and then some industry knowledge. And then we went on this operational improvement journey, everything from how you buy raw materials, how much material goes in each door, productivity in the plant, safety, process, how we load the trucks, route efficiencies, soup to nuts, everything that we do.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“We didn't use a lot of leverage, the percent equity in the deal would have been 40% or something. Top grading of the leadership team did happen. We brought in a talented guy I had known Dave Bangert from Danaher. I had hired separately to run Ingersoll Rand, Dave's old boss, Vicente Reynal. So knew a lot of people who knew Dave and Dave knew us. So that was an easy hire. And Dave lived in Indianapolis. So it was a drive to Arthur, Illinois, which is by Urbana-Champaign University of Illinois. So a little bit remote. can be a difficult place to recruit people into. So there was an opportunity to bring in some really operationally oriented folks. We did bring in some new environmental health and safety help. The injury recordable incident rate, which is OSHA's key metric of safety, was 14 at the time. What that means is for every 100 people in the plant, how many people per year were getting hurt and was 14 out of 100 per year. So you add that up.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm not sure about the second one. The reason I said hi, we know what we want. When we find that situation of good business, we could do more. We want to own it. We're not going to do something foolish. We're not going to just bid all the return away. But back to the return on time perspective, once we know this is what we want, we want to take our best shot. And if it's not going to work out, it's not going to work out. We'll go on to the next one. We try and preempt frequently. I couldn't give you a percentage. I just don't know. And then in terms of how frequently that works, I would say it depends on the market. If it's a super hot market seller's or like, why would I do this? Who knows what's going to come out of the woodwork? If it's a little shakier and people see real value in speed and certainty, it's more likely to work out. Wish I had percentages on all this, but that's qualitatively how I think it works.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“The scheme of everything you're looking at and get excited about what percentage of deals you're trying to preempt And what percentage do you think you ultimately win versus the ones you have to walk away from?”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a little bit the opposite where people say fourth private, why are we going to do this? And the investment committee would typically come to the table saying, come on, this is our strategy to buy the fourth time. What could we possibly do with this thing? Good business, but it's been owned by Private Equity for 20 years, so it's going to get bid to a very low return. Everyone knows it's good business. So it's going to get bid to a 10% IRR. That doesn't sound that interesting.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't want to make it sound like we're the only ones who do this, but we have a really operationally oriented investment team. I myself used to do four Kaisen events every year, a week of time working on a shop floor. We would go to Japan for 10 days at a time and we would have the founders of the Toyota production system take us around to a dozen of the world-class lean plants in the world, right? They all exist in Japan. We've spent enough time in operations that with the right questions and some financial information, we can find the opportunity. I wouldn't trust us to go run a business, but we know enough to know where the opportunity lies and how to get it. Again, I'm not saying we're the only ones who operate that way, but relative to the others who owned it, they may not have had quite that orientation. Also keep in mind, it was a good business. People made money. It's not like the prior owners had a bad deal on their hands. Somebody doubled their money. Somebody tripled their money. These were good deals and it was a good company.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“Without throwing darts at prior owners, I'm curious why some of these things that you could see so quickly and clearly as professional business processes hadn't been installed previously by a series of private equity owners.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“U We're looking for good companies that we can inflect Meaningful way Maybe through acquisition or growth, maybe strategic repositioning, top grading talent. But the question at Investment Committee is always, why is it going to be different? Growing Top line If it's a great business, we're looking.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm excited to share the first episode of a new podcast called Private Equity Deals. Much like capital allocators, we'll share investment conversations that previously occurred only behind closed doors. In each episode, we discuss an individual private market deal with a manager to learn about the companies, deal dynamics, and ownership that make private equity a force in institutional portfolios and the global economy. The conversations also shed light on how each firm goes about their craft. The first season of private equity deals consists of eight episodes with some of the top private equity managers released every other week on Wednesdays. We've shared the first on this feed, a conversation with Pete Stavros, co-head of KKR's U.S. private equity business, about a recently exited portfolio company overhead doors.”
2022-09-15 · Capital Allocators · SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast · IDENTIFIED FROM THE TRANSCRIPT · source