When operating performance must be improved
A private equity firm was concerned that one of its portfolio companies—a global automotive parts supplier—was struggling. The company’s revenues had plummeted by more than 25%, and its EBITDA dropped from 15% of revenues to just 5%. Management had tried to stop the bleeding through aggressive pricing, moving production to low-cost countries, and reducing overhead. Although these measures had helped revive revenues, EBITDA hadn’t recovered. The PE firm asked AlixPartners to help build and execute a plan that would bring EBITDA back up to 15%.
A rapid assessment leads to a business strategy
We conducted our proprietary QuickStrike® diagnostic to understand the root causes of the company’s problems. The assessment revealed a number of issues. For instance, managers had little visibility into the profitability of the company’s different products. Misguided changes to the company’s manufacturing operations, along with an ineffectively executed lean manufacturing program, had introduced costly operational inefficiencies. To avoid customer penalties for delayed deliveries, the company had also spent more on emergency freight—and freight costs as a percentage of sales had reached alarming levels. Rising prices for essential commodity raw materials didn’t help matters, as the sales contracts that the company had with many of its customers contained no mechanism for passing raw material cost increases through to them. We also used our diagnostic to assess performance across the company’s many factories and were able to identify which ones were struggling the most and what improvement levers to adopt.
Next, we crafted and helped execute a comprehensive turnaround plan for reviving EBITDA. The plan covered the full gamut of EBITDA-improvement strategies in areas including supply chain strategy, manufacturing, engineering, purchasing, and SG&A. Some examples of the projects we developed included providing interim management in two of the regions where the company operated, negotiating price changes with customers, and providing supply chain support in two other regions where the company did business. We also created a custom-designed tool that enabled managers to compare profitability across customers and products, on an on-going basis, so they could spotlight problems and correct any issues.
When it really matters
Efforts aimed at reviving EBITDA paid off handsomely. By the end of the first year of the turnaround’s execution, the company had implemented initiatives delivering €50 million in EBITDA improvements. EBITDA had recovered to 15%, and the business regained its credibility in the eyes of its PE owners. The work also boosted the company’s exit value considerably. A year after the turnaround, another automotive parts maker made a binding offer to purchase the business from the PE firm for almost $1 billion.
The company’s CEO later expressed astonishment that the division was fully back on track so quickly, and extended his personal thanks to our team for their support and participation in this achievement.