Exploring the importance of having a clear value creation programme, with five key steps.
At LDC, from the point of investment we hone in on the areas of a business where value can be added. We realise the importance of mapping out both short term and long term strategies, and our dedicated Value Enhancement Group provides businesses with a clear programme to achieve this from the outset. In doing so, we can identify areas where value can be achieved, and put in place the necessary actions in order to maximise shareholder return.
The implementation and execution of a clear business plan is often where business owners fall short in achieving their growth ambitions. By developing an ongoing programme which is regularly reviewed, opportunities can be identified and capitalised on as an ongoing work-in-progress. At LDC we provide businesses with a bespoke 100-day value creation programme, laying out how we will enhance key areas of the business by setting profitability targets alongside matching performance objectives.
From our experience, the most important thing in any value creation programme is to establish an end goal to direct strategy. Based on this, ‘quick hits’ can then be identified to make immediate savings, and more long term opportunities can be mapped out in order to strategically take the business to another level.
By having a four to five year outlook, which takes into account actions for every 100 days, progress can be constantly tracked and measured and should be up for review on a monthly basis.
Key areas to achieve value:
Tap into opportunities for growth and integration: every value creation programme should ensure businesses are tapping into areas of potential growth and integration. Embarking on a buy-and-build strategy is one way to drive value and performance. LDC’s portfolio company SPS, previously known as Driver Hire, further expanded its operations and boosted its service offering through the acquisition of Infra Safety Services Labour Limited. The transaction led to SPS becoming the UK and Ireland’s largest specialist supplier in its market and we have continued to support further acquisitions as part of its long term growth strategy. Similarly, identifying opportunities overseas can add value to a business, with access to international markets presenting multiple avenues for growth and expansion. Whether it’s embarking on an international joint venture, off-shoring your manufacturing processes, or acquiring an overseas competitor to expand your reach, the onus is on business owners to have clear steps mapped out in order to achieve this. Calving out areas of a business to sell should also be considered as an effective way to generate cash and increase the focus on core capabilities.
Focus on top line growth: Investing in growing a business’s capabilities at the top end is key to adding value. There are only so many costs you can take out of a business at the bottom-line, so by investing in growth opportunities, as we did with pharmaceutical business Penn Pharma, instant value can be achieved. Our investment in Penn Pharma, a pharmaceutical manufacturing business, involved backing its investment in a new £14million world-class manufacturing operation in 2013, which resulted in a significant uplift in manufacturing contracts with key international contacts. During the investment period of seven years, the business’ annual turnover increased from £17million to more than £30million.
Optimise your operations: an effective procurement strategy is essential to keeping costs down, allowing savings to be made on operations which can be reinvested back into the business to drive growth. Throughout our period of investment in Fever Tree, a leading supplier of premium carbonated mixers for spirits, our ongoing value enhancement programme helped drive down a raft of operational improvements, including revising distributor partnerships in key international territories and implementing a new CRM system to further improve UK sales. In July of this year, we sold our final stake in the business following its AIM listing in November 2014.
Constantly review your marketing strategy: as a business grows, it’s vital your marketing strategy evolves with it in order to effectively target a changing and expanding customer base. This requires a shift from brand building to brand nurturing, whereby you are constantly re-engaging with your customers. A successful marketing strategy means tapping into the right market with the right messages, which is why it’s essential to be malleable in your approach and regularly review strategy in line with your expansion.
Invest in your digital presence: a business’s digital presence is more important than ever before, and your e-commerce strategy should be reviewed regularly. By updating your online presence, it will help attract new customers, while continually engaging your existing ones. Internal digital processes should also be regularly audited, to ensure your business is using technology to the best effect. Reviewing your digital strategy and keeping up to date with the latest technological innovation can help increase efficiency and optimise your internal processes.
For more information on LDC’s Value Creation Support please contact us
by Sophie Reed