Q: James, in 2010 75% of the companies Blackstone owns on behalf of its investors grew EBITDA and hired approximately 20,000 people. What made that possible?
A: In early 2007, we took the position that the economy seemed over heated. We then carefully worked with the management teams of the companies we owned on behalf of investors to prepare for and weather the economic downturn.
This not only influenced the types of companies we invested in but also influenced how we advised the companies. We encouraged each management team to prepare for a possible recession. We could not have predicted the depth of the recession or the financial crises that would take place, however, our portfolio companies were not caught unaware when markets started to turn. Working collaboratively in planning budgets for 2008, we introduced the need for a recession case with appropriate contingency plans, which could be executed as the macro environment warranted. Therefore, as the breadth and depth of the recession unfolded, we had in place clear road maps and initiatives already in place for immediate execution which persevered our customer facing value added, while scaling our businesses appropriately for the demand downturn. Consequently, our portfolio companies were able to emerge in positions of strength. In 2010, Blackstone’s portfolio of companies achieved revenue growth of 9% and EBITDA growth of 12%
Q. How big is the opportunity to drive improvements to the bottom line?
A: First you need to know the size of the portfolio. We are invested in 64 companies within our private equity business unit, which combined, have over 685,000 employees and generate about $130 billion in revenue. Together, these companies would rank No. 7 on the Fortune 500 list. Our goal is to partner with each of our companies’ senior management teams to help them build stronger enterprises, preserve and create jobs and achieve lasting value for investors. Overall, the Portfolio Operations group has supported senior management teams and provided operational leadership in generating or being on track to generate $4 billion in annualized gross EBITDA increases spanning the last six years. Very powerful and very big opportunity.
Q: $4 billion in gross EBITDA is quite a large number. How do you and the team approach value creation?
A: Importantly, we start with a highly seasoned and talented team. Our full Portfolio Operations team is comprised of 60 professional with collectively hundreds of years of senior operating experience with world-class organizations in North America, Europe and Asia. Among our ranks are successful former business leaders and industry experts who partner with portfolio company management teams to enhance productivity and profitability.
The Group begins focusing on potential performance improvement even before an investment is made. We work along side deal teams during the due diligence process to analyze performance improvement opportunities and the readiness of an organization to implement transformational changes. Once an investment is made, we help management craft 100-day plans, as well as longer-term strategies, and assist them in putting the initiatives into practice.
In the process, we build stronger enterprises, preserve and create jobs, and enable our portfolio companies to achieve lasting value for both our fund investors and successor owners.
Q: Can you be a bit more specific as to what areas the Portfolio Operations Group focuses on to drive performance?
A: We deploy our capabilities in six key areas or levers of performance. These are; revenue generation, operations, services and infrastructure; purchasing and cross selling; leadership development; organization effectiveness and health care benefits. Focusing on these areas can drive meaningful increases in the growth, efficiency and profitability of the portfolio companies.
While some companies will focus on only one of the areas at a time, there are many portfolio companies that work with us to deploy multiple levers of performance improvement simultaneously. In some cases, these initiatives lead to a fully integrated transformation of the entire company to achieve step function change in strategy and operational improvement.
Q: Sounds like a lot of value creation as well as value preservation.
A: Without a doubt. During 2010, Blackstone’s portfolio of companies achieved year over year Revenue growth of 9% and EBITDA growth of 12%, which will translate into increased value for these investments. I would also like to think the Portfolio Operations Group contributed to the ability of our portfolio companies achievement of more than 3% growth in employment. That’s approximately 20,000 sustainable new jobs in growing companies - so we are not only improving the competitiveness of our companies, but also contributing to the overall economic health of the community. Not just better jobs, more jobs. But we have a lot more we can do. And we will.