Gone are the days of multiples arbitrage and financial engineering to bolster exit valuations. The rising complexity and competition in private equity require firms to respond with disruptive, high-return approaches. Top-quartile firms commonly focus on portfolio companies’ operational excellence and industry differentiation to secure their investments. Today, we meet a firm that leads with an innovative competitive strategy – solving the value creation puzzle by accelerating portfolio companies’ top-line growth.

Taking an Innovative Approach to Value Creation

“We provide a focused ability on how to get there – a pipeline. It’s about creating focus and visibility to progress.” – Brian Potts, Operating Partner, One Rock Capital

This episode of Expert Insights Series, hosted by Blue Margin Co-Founder Jon Thompson, features operating partner Brian Potts of One Rock Capital. During diligence, Brian assesses investment growth potential, and post-acquisition, he sets and executes portfolio companies’ sales and marketing strategies. He has 25 years of experience building and improving businesses; holding leadership positions in manufacturing at Cintas and Clarus, in media at The Nielsen Company, in consumer products at Blue Triton Brands, and in PE at GE Capital, Antares Capital, and The Riverside Company.

One Rock Capital Partners, founded in 2010, is an operationally focused private equity firm with offices in New York and L.A. Mitsubishi Corporation serves as their strategic partner, providing access to a global resource network. With $5.1bn of cumulative capital commitments and 16 active platform companies, One Rock invests in the chemicals and process industries, specialty manufacturing and healthcare products, business and environmental services, and food manufacturing and distribution.  

Disclaimer: The views and opinions expressed in this interview are Brian’s and do not necessarily represent the views and opinions of One Rock Capital.

Watch the full interview, listen to the podcast, or read the interview highlights below.

Principal Themes:

Igniting Top-Line Growth: A Perspective on Portfolio Company Value Creation

“It goes back to the multiples people are having to pay. You cannot do it with cost. You must do it by growing the business.” –Brian Potts

Not long ago, private equity was singularly focused on operational excellence – managing the bottom line. But record-high multiples have forced operational teams to find new modes of increasing return percentages. Bain and Company’s 2021 Global Private Equity Report highlights buyout multiples’ 2021 spike. (See figure below).

(Source: Bain and Company’s Global Private Equity Report, 2022)

In response to heightened multiples, Brian believes private equity should also attack the top line to achieve unprecedented returns. For that reason and through observing that many companies have ambitious sales targets with no concrete execution plan, sales and marketing operating partners (like Brian) are becoming more common.

Brian’s team uses a consistent process for strategizing top-line growth. Having applied this process to 100+ companies, One Rock Capital has learned how to systematically grow sales pipelines. With that foundation, they lead management teams through a series of questions, including “Where do you see the most growth potential? What is your current process for achieving that? How well do you understand your target client and your competitors? How big is the addressable market?”. Through that process, Brian helps management teams develop and take ownership of a focused strategy for organic growth that’s backed by data. This specialization and methodology have translated to a competitive advantage for the firm.

Partnering with an Entrepreneur Owner? Honor the Past and Plan for the Future

“I believe in having a very respectful nod to the past. A lot of what they have, what they did, worked.” –Brian Potts

One Rock Capital focuses on carveouts and family businesses, using a hands-on approach, so creating a bond with owners during diligence and post-acquisition is crucial for a successful partnership and value creation. In Courage to Lose Sight of Shore: How to Partner with Private Equity to Grow Your Business with Confidence, author and CEO Kelley Powell discusses the importance of this bond between PE partners and owners. She writes, “The magic is in the relationships” (Powell, 2020). While many PE firms press a prescriptive methodology during the 100 days following acquisition, One Rock operates differently. They set a tone for the future by first acknowledging the past, then build from that foundation.

Again, Brian advocates for employing questions, inviting the owner to dream about their company’s future growth. Questions such as “How did you get to this point? Where do you want the company to be in five years? What do you think would get you there?” establish a foundation of respect and a collaborative working relationship.

Data Visibility: One Rock Capital’s First Step with New Portfolio Companies

“We start talking about our exit strategy on the day we acquire. Can an owner tell a story with their data? Are we happy with the story?” –Brian Potts

Post-acquisition, One Rock lifts the hood to assess the company’s level of data visibility, believing that a company’s data capability speaks volumes about their overall health. While most companies have reporting in place for lagging indicators, Brian looks for their visibility into leading indicators. What metrics are they measuring and managing?

After this assessment, One Rock establishes a set of core metrics on a simple-to-read dashboard. In contrast to an airplane’s cockpit with its countless gauges, Brian advocates for a minimal, motorcycle-style dashboard with only the most essential information. (This aligns with dashboard design best-practices, discussed in more detail here.) Reducing an excess of information down to the few key value drivers takes work but proves worthwhile. As Brian puts it, “We have to work to get there; it’s not an easy journey. But the value it creates for us later is tremendous.” 

From Mercenary to Incubator Mindset: Private Equity’s Evolution

“The quality of what you sell matters at this point. You can’t just cobble a few things together and hope for multiples arbitrage and run.” –Brian Potts

In the earlier years of private equity, acquiring and selling portfolio companies was similar to flipping houses. Brian estimates that 40-50% of firms operated in this mercenary “cut ‘em and gut ‘em” mode, not actually improving portfolio companies but instead relying on multiples arbitrage or other financial engineering for returns. A competitive landscape invalidates this mindset, requiring firms to either actively improve their portfolio companies or face obsolescence. As Brian says, the “quality of what you sell matters at this point.” By consistently increasing the quality of their companies (in market positioning, sales growth, operational efficiency, etc.), One Rock increases buyer confidence.

Connect with Brian and One Rock Capital

Interested in connecting with Brian? You can find him on LinkedIn or through One Rock Capital.

About Blue Margin

Blue Margin helps PE and mid-market companies quickly convert data into automated dashboards, the most efficient way to create company-wide accountability to the growth plan. We call it The Dashboard Effect, the title of our book and podcast. Our mission is to accelerate your value creation plan.