Operating partner

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An operating partner is a title used by venture capital (VC) and private equity (PE) firms to describe a role dedicated to working with privately held companies to increase value. The role was created by large-capitalization private equity groups when the importance of driving corporate change to add value increased as sellers became more sophisticated and financial engineering less central to private equity investments in the 2000s. [1] Firms with operating partners argue that value creation potential is better achieved by a fully dedicated partner than relying solely upon external consultants. The operating partner role has evolved into a full-time position drawing a combination of salary, performance bonus, and carried interest similar to an investment partner. [2]

Contents

Definition

Operating partners are proven business leaders, functioning as either generalists or specialists, and have successful track records of creating value in operating companies. They are usually more capable of developing strategies and leadership teams than a deal-oriented partner. Most travel often to engage with portfolio companies and are expected to spend time leveraging their professional networks to improve portfolio company value. [3] They are usually former CEOs, COOs, CFOs, chief revenue officers, management consultants, or some combination with market knowledge of PE, such as deal structuring, in the investment firm's target industries. They typically focus on due diligence, strategic planning, commercial growth, operational efficiency, and financial controls. Operating partners use their skills and experience to improve portfolio companies. [4]

Role and Responsibilities

The role of an operating partner can span the full investment cycle from due diligence to post-transaction integration through to a liquidity event or full exit event. [5] Operating partners are deployed by investors and boards as a catalyst for change, as coaches or mentors, and in some cases, to serve as "sparring partners" for management. Operating partners may manage short- to medium-term as well as long-term operational improvement programs for portfolio companies. They may also support management in day-to-day operations, as interim management, as board members or observers, and/or as advisors. [6]

The role of an operating partner should not be confused with the role of a venture partner or an entrepreneur-in-residence. A venture partner is a non-salaried external resource who is expected to source deals and play a significant role in a few or more companies over the life of a fund usually receiving salary and equity interest directly from the target company. An entrepreneur-in-residence (EIR) is similar to a venture partner, but works on only a single company and typically steps into the company as the full-time CEO, CFO, or other c-level position.

Value

All VC and PE firms seek to maximize the value of their investment. In recent years, the industry has experienced increased pressure to drive operational value creation. In other words, shifting focus from leverage and multiples arbitrage to increasing the fundamental operational, commercial, and financial performance of their portfolio companies. As a result, operating improvement must translate into increased enterprise value to yield higher investment returns. Hence the new partnership triad between general partners, limited partners, and operating partners. [7] [8]

Types of Operating Partners

Some operating partners have specialized expertise to create value for portfolio companies. For example:

Digital Operating Partner

The private equity digital operating partner is a business executive with experience in strategy, science & technology, and operations. Their role is to create enterprise value by identifying, planning, and managing the execution of digital initiatives. This process is often referred to as digital transformation. Although any type of technology (high, mid, low) can be applied to any type of company, digital transformation generally refers to the process of using high technology {the internet of things (IoT), data science (analytics & AI), the digital twin, sensor fusion, augmented reality, blockchain} to transform traditional companies into digital-traditional companies.

Notable Operating Partners

While some high-level executives may be appointed as operating partners, they often function more like senior advisors.

Related Research Articles

Private equity (PE) typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies. More formally, private equity is a type of equity and one of the asset classes consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange.

Venture capital Form of private-equity financing

Venture capital (VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth. Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful. Because startups face high uncertainty, VC investments have high rates of failure. The start-ups are usually based on an innovative technology or business model and they are usually from high technology industries, such as information technology (IT), clean technology or biotechnology.

Bain Capital is an American private investment firm based in Boston, Massachusetts. It specializes in private equity, venture capital, credit, public equity, impact investing, life sciences, and real estate. Bain Capital invests across a range of industry sectors and geographic regions. As of 2022, the firm managed more than $155 billion of investor capital. The firm was founded in 1984 by partners from the consulting firm Bain & Company. The company is headquartered at 200 Clarendon Street in Boston, Massachusetts, with 22 offices in North America, Europe, Asia, and Australia.

Apax Partners British private equity firm

Apax Partners LLP is a British private equity firm, headquartered in London, England. The company also operates out of six other offices in New York, Hong Kong, Mumbai, Tel Aviv, Munich and Shanghai. As of December 2017, the firm, including its various predecessors, have raised approximately $51 billion (USD) since 1981. Apax Partners is one of the oldest and largest private equity firms operating on an international basis, ranked the fourteenth largest private equity firm globally.

Wilshire Associates, Inc. is an American independent investment management firm that offers consulting services and analytical products and manages fund of funds investment vehicles for a global client base. Wilshire manages capital for more than 600 institutional investors globally representing more than $8 trillion of capital. Wilshire is also known for the creation of the Wilshire 5000 stock index in 1974 and more recently the Wilshire 4500 stock index.

A private-equity fund is a collective investment scheme used for making investments in various equity securities according to one of the investment strategies associated with private equity. Private equity funds are typically limited partnerships with a fixed term of 10 years. At inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund. From the investors' point of view, funds can be traditional or asymmetric.

Clayton, Dubilier & Rice American private equity company

Clayton, Dubilier & Rice is an American private equity company. It is one of the oldest private equity investment firms in the world. Founded in 1978, CD&R has managed the investment of more than $30 billion in approximately 90 businesses, representing a broad range of industries with an aggregate transaction value in excess of $140 billion. Approximately half of CD&R's investments have involved corporate divestitures.

CVC Capital Partners British private equity and investment advisory firm

CVC Capital Partners is a British private equity and investment advisory firm with approximately US$111 billion in secured commitments since inception across European and Asian private equity, credit and growth funds. As of 2019, CVC managed US$75 billion of assets, the funds managed or advised by CVC are invested in 73 companies worldwide, employing over 300,000 people in numerous countries. Since 1981, CVC has completed over 500,000 investments across a wide range of industries and countries. CVC was founded in 1981 and today has over 400 employees working across its network of 24 offices throughout Europe, Asia and the Americas.

Sun Capital Partners American private equity firm

Sun Capital Partners, Inc., is an American private equity firm specializing in leveraged buyouts. Sun Capital was founded in 1995 by Marc J. Leder and Rodger Krouse, former classmates at the Wharton School of the University of Pennsylvania and investment bankers at Lehman Brothers.

In finance, the private-equity secondary market refers to the buying and selling of pre-existing investor commitments to private-equity and other alternative investment funds. Given the absence of established trading markets for these interests, the transfer of interests in private-equity funds as well as hedge funds can be more complex and labor-intensive.

Silver Lake is an American global private equity firm focused on investments in technology, technology-enabled and related industries. Founded in 1999, the firm is one of the largest technology investors in the world. Its investment holdings have included Airbnb, Alibaba Group, Ancestry.com, Broadcom, Credit Karma, City Football Group, Dell Technologies, Endeavor, Expedia Group, Fanatics, First Advantage, Global Blue, GoDaddy, Jio, Lightbox, Motorola Solutions, NortonLifeLock, Red Ventures, Sabre Corporation, Skype, SoFi, GLG, Seagate Technology, SolarWinds, TEG, Twitter, Unity, Waymo, Weld North Education, WP Engine, Vacasa, the A-League football competition in Australia, and ZPG. Silver Lake is headquartered in Silicon Valley, and has offices in New York, London and Hong Kong.

Baird (investment bank) American investment firm

Robert W. Baird & Co. is an American multinational independent investment bank and financial services company. It is the principal U.S. operating subsidiary of Baird, an international, employee-owned financial services firm providing investment banking, capital markets, private equity, wealth management, and asset management services to individuals, corporations, institutional investors, and municipalities.

Private-equity firm Company sponsoring start-ups or operating companies through private-equity investment

A private-equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital. Often described as a financial sponsor, each firm will raise funds that will be invested in accordance with one or more specific investment strategies.

BC Partners Private equity firm

BC Partners is a British international investment firm with over $40 billion of assets under management across private equity, credit and real estate in Europe and North America. Its global headquarters are in London. The firm invests across all industries. BC Partners was founded in 1986 and has offices in New York, Paris, Milan and Hamburg. Since inception, BC Partners has completed 113 private equity investments in companies with a total enterprise value of €145 billion.

Early history of private equity

The early history of private equity relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks.

Private equity in the 2000s

Private equity in the 2000s represents one of the major growth periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital expanded along parallel and interrelated tracks.

Friedman Fleischer & Lowe American private equity firm

FFL Partners, LLC, previously known as Friedman Fleischer & Lowe, is an American private equity firm, founded in 1997 by Tully Friedman, Spencer Fleischer, David Lowe, and Christopher Masto. The firm makes investments primarily through leveraged buyouts and growth capital investments and is focused on investing in the U.S. middle-market.

OpCapita is a British private equity firm specialising in the retail, consumer and leisure industries. The firm invests in underperforming businesses that require operational support to improve profitability and create long-term, sustainable value. OpCapita was established in 2006, by American financier Henry Jackson.

Mark Gillett British business executive and technologist

Mark Gillett is a British business executive and technologist. He is currently a partner, managing director and the senior operating partner at Silver Lake Partners, one of the largest global technology investment funds.

References

  1. ↑ Star, Marlene Givant. "Private Equity Groups Focus On Operations To Combat Lean Returns". Forbes. Retrieved 12 Jan 2014.
  2. ↑ Brigl, Michael. "Private Equity: Engaging for Growth: The 2012 Private-Equity Report". BCG Perspectives. Retrieved 13 April 2012.
  3. ↑ Quarta, Roberto. "The Operating Partner: an Industrial Approach to Private Equity Investment" (PDF). Clayton Dubilier & Rice. Retrieved 11 April 2012.
  4. ↑ Brigl, Michael. "New Operating Models". BCG Perspectives. Retrieved 11 April 2012.
  5. ↑ Quarta, Roberto. "The Operating Partner: an Industrial Approach to Private Equity Investment" (PDF). Clayton Dubilier & Rice. Retrieved 11 April 2012.
  6. ↑ Hemptinne, Coralie. "The value of in-house operation teams in private equity firms" (PDF). INSEAD. Retrieved 11 April 2012.
  7. ↑ Brigl, Michael. "Private Equity: Engaging for Growth". BCG Perspectives. Retrieved 11 April 2012.
  8. ↑ Favaro, Ken. "The Next Winning Move in Private Equity". booze&co. Retrieved 11 April 2012.
  9. ↑ "Giancarlo Quits Cisco, Paddles to Silver Lake".
  10. ↑ "Former Boots CEO to join Advent International's Operating Partner Program".
  11. ↑ "Top Skype Exec Mark Gillett Departs Microsoft".
  12. ↑ Griffin, Donal (8 July 2013). "Citigroup Names Reiner, Turley to Board of Directors". Bloomberg.com. Bloomberg.
  13. ↑ "Jim Hinton, Former CEO of Baylor Scott & White Health, Joins Welsh, Carson, Anderson & Stowe as Healthcare Operating Partner".
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