When unlocking latent shareholder value doubles performance against industry peers

Overview

  • MeadWestvaco, a global packaging company, was delivering below-average shareholder returns despite multiple cost-reduction initiatives
  • A company-wide assessment zeroed in on where value was concentrated and why, before implementing a series of improvement initiatives focused on driving greater shareholder value
  • In the three-year period of the business transformation, MeadWestvaco delivered a 60 percent increase in shareholder value, double that of its competitors, who recorded a 31 percent return in the same time period

SITUATION: Stagnant shareholder returns despite restructuring efforts

Despite significant portfolio restructuring and repeated cost-reduction initiatives, global packaging company MeadWestvaco (MWV) was still delivering below-average shareholder returns.

Chairman and CEO John Luke decided to adopt a more disciplined approach to managing shareholder value.

APPROACH: Identifying value to unlock portfolio improvement potential

Following our engagement by MWV, we worked with line management of each business to conduct a company-wide assessment of where and why economic profits were being created and consumed across the corporation and the markets they served.

Everywhere and always value is highly concentrated, and helping management understand where and why value is concentrated helps to unlock the latent value improvement potential in the portfolio.

At MWV, only 50% of revenues and 40% of employed capital created > 100% of the company’s shareholder value and MWV only created shareholder value when it participated in economically profitable markets.

We worked with the leadership team to ensure all opportunities had an “apples-to-apples” comparison of the sources and drivers of economic profits, and risk-adjusted valuation of each opportunity.

Our Corporate Strategy and Transformation team provided coaching and support to help line management develop detailed implementation plans for each opportunity.

THE SOLUTION: A corporate value-improvement agenda with shareholder interests at its core

Armed with this financial and strategic assessment, the MWV leadership team was able to define and quantify a clear and concise corporate value-improvement agenda.

Over the next 18 months management implemented a number of portfolio and business model changes, while also institutionalizing a number of management disciplines to better align incentives and decisions with shareholder interests – e.g., shifting investment to economically profitable businesses and business segments (such as Brazil packaging), restructuring the production footprint of the company, focusing on profitable, multi-product customer relationships.

Between Year 1 and Year 3, MWV delivered significant improvements in overall economic profit growth above what was conservatively forecast.

While the competition delivered a 31 percent return to shareholders over that time period, MWV delivered a 60 percent increase in shareholder value, double that of its peers.

when it really matters alixpartners 2019

WHEN IT REALLY MATTERS: EBITDA IMPROVEMENT IN SEVEN MONTHS—AND A HIGHLY PROFITABLE EXIT IN FIVE YEARS

The performance improvement achieved at our client’s newly acquired portfolio company—an $11 million increase in annual EBITDA in just seven months—speaks volumes about the importance of implementation planning early in the investment game.

  • The outcomes of this case show how AlixPartners’ approach is distinctive in other respects as well. Specifically:
  • We support our PE clients throughout all stages of the investment lifecycle, including pre-transaction, pre-close planning, value creation, and achievement of full potential. 
  • We help clients with crisis management in all stages of the lifecycle—such as determining how to turn around a target that’s in bankruptcy or getting a struggling transformation program back on track at a newly acquired business.
  • We identify, drive, and help secure sustainable improvements in portfolio companies’ performance.
  • We work side-by-side with PE sponsors and their portfolio companies’ management teams to ensure that deals deliver the intended value. 

Our unique approach enabled this client to quickly restore their distressed portfolio company’s EBITDA performance to levels that attracted a buyer willing to pay a handsome price—one that nearly doubled the investment value at exit.

The performance improvement achieved at our client’s newly acquired portfolio company—an $11 million increase in annual EBITDA in just seven months—speaks volumes about the importance of implementation planning early in the investment game.

  • The outcomes of this case show how AlixPartners’ approach is distinctive in other respects as well. Specifically:
  • We support our PE clients throughout all stages of the investment lifecycle, including pre-transaction, pre-close planning, value creation, and achievement of full potential. 
  • We help clients with crisis management in all stages of the lifecycle—such as determining how to turn around a target that’s in bankruptcy or getting a struggling transformation program back on track at a newly acquired business.
  • We identify, drive, and help secure sustainable improvements in portfolio companies’ performance.
  • We work side-by-side with PE sponsors and their portfolio companies’ management teams to ensure that deals deliver the intended value. 

Our unique approach enabled this client to quickly restore their distressed portfolio company’s EBITDA performance to levels that attracted a buyer willing to pay a handsome price—one that nearly doubled the investment value at exit.

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