Driving Performance: A Primer on SCP Back

Driving Performance: A Primer on SCP

By: David Bitterman, Managing Director and Head of Business Development

As a Managing Director and Head of Business Development out of SierraConstellation Partners’ New York office, I initially joined to help the firm expand its already robust national footprint further into NYC and other cities on the east coast. When reaching out to my longstanding relationships to introduce SCP, several asked a very fair question: “What does SCP do?”

When you work with middle-market companies facing operational and financial transitions, as we do, most of the attention goes toward our work in restructurings and bankruptcies. After all, the transparent nature of the bankruptcy process creates a great deal of public attention. There are press releases, court filings, and headlines.

However, some of our most important work comes long before a bankruptcy filing – and hopefully helps our clients avert a restructuring altogether.

When we start engagements with our clients, our work often focuses on “Performance Improvement.” Perhaps sales are declining and the company needs a refocused strategy to capitalize on expanding product areas. Perhaps the company is facing operational difficulties resulting from over-expansion, and needs to iron out its processes to begin the next phase of growth. Whatever the challenge, it’s easier and less costly to identify and fix it early than to have to address it in bankruptcy court. At its most basic, our job is to drive enterprise value.

Our work frequently brings us into boardrooms with lenders and private equity firms, who work closely with their borrowers and portfolio companies to keep their performance on track. A common misperception is that a firm like ours is only useful if a default or bankruptcy is imminent, and this couldn’t be further from the case.

Lenders, for example, may not have any borrowers headed for an immediate default. Superficially, their portfolio looks healthy. However, certain borrowers might be experiencing challenges, which could lead to renegotiations or a default if left unchecked. Driving enterprise value should be good for both the lender and the borrower, not when the borrower defaults, but when the borrower is experiencing some headwinds. In addition to our work in restructurings and bankruptcies, I’m hopeful that borrowers and their lenders will also think of SCP as a “Performance Improvement” advisor.

Private equity firms have a different model but similar challenges. Many deploy an “operating partner” model where a senior executive at the firm will be responsible for a company or companies in the portfolio. Operating partners typically have deep experience in growing and even restructuring companies, but can still benefit from an expert performance improvement advisor such as SCP.

Recently, I learned that one of my private equity contacts was essentially operating as interim CEO at one of his portfolio companies. He would fly out every Monday to the portfolio company’s offices, and return home Thursdays to handle other daily tasks. One of our senior professionals at SCP had deep operational experience in the portfolio company’s industry and was fully equipped to serve as an interim C-suite executive. After informing my contact about SCP’s performance improvement capabilities, we came onto the project [and helped create a successful outcome]. For operating partners whose mandates span multiple portfolio companies, SCP can devote its full attention to a company in need of assistance.

I believe that advisors, if they are good, will more than pay for themselves. Our value comes not just from our extensive experience improving performance, but from our toolkit of strategies that our clients might have spent more money and time rolling out than they would have spent hiring us. For example, performance improvement professionals live by the 13-week cash flow model, and it is one of the most elemental tools in our arsenal for gauging how a company is performing. Many of our clients have never compiled one until we do it with them.

If you’ve decided to hire a performance improvement advisor, it’s also important to choose the right one. At SCP, we have many more capabilities than just a “single shingle,” but we pride ourselves on not overstaffing our projects. We bring experienced, senior-heavy teams to client engagements, working both for borrowers and creditors. For lenders, private equity firms and the companies to which they have committed capital, our goal is to find a solution to improve performance and drive enterprise value long before the worst-case scenario comes to pass.