DHR Quarterly Private Equity Report - July 2015

I N T E R N A T I O N A LCopyright © 2015 DHR International, Inc. All Rights Reserved. 1

1 Letter from our Leader: Keith Giarman

1 Private Equity Practice Group Members

2 DHR Assists in Senior Level Succession

Planning at the Transdigm Group

3 Spotlight: Steve Godwin

5 Recent Searches

Private Equity Practice Group MembersKeith Giarman

Global Leader, Priviate Equity

(San Francisco, CA;

New York, NY)

Martin Pocs

Vice Chairman

(Denver, CO)

Jay Millen

Vice Chairman, North America

(Charleston, SC)

Craig Randall

Executive Vice President

(Chicago, IL)

Steve Godwin


(Atlanta, GA)

Christine DeYoung


(Chicago, IL)

Craig Sigovich


(Stamford, CT)

Lars Noble


(New York, NY)

Diane Coletti


(Boston, MA)

I N T E R N A T I O N A LNewsletter

QUARTERLY PRIVATE EQUITY REPORT

Letter from our Leader: Keith Giarman

DHR International has made a strategic commitment serving the

unique needs of the private equity (PE) industry on a global basis

and related funds that make direct investments employing various

asset strategies. The practice typically focuses on board, C-level

and executive level positions in portfolio companies working with

our industry and functional experts. The practice has completed

nearly 500 portfolio company assignments over the past 5 years

working with a range of funds with different investment strategies,

including private equity firms of various size and scope, family

offices, pension funds, credit/distressed funds, sovereign funds,

angel investors, venture capital firms and other investors that

pursue a direct principal investing strategy. We hope this quarterly

report helps elucidate our unique approach and personality as a

firm. Please go to our website to learn more about our renowned

consultants, our PE Conference and White Papers addressing

human capital issues facing the PE community.

Keith Giarman

Global Leader, Private Equity

http://www.dhrinternational.com/practice/venture-capital-private-equity/


DHR Assists in Senior Level Succession Planning at the Transdigm Group (TDG)

The Multi-Billion Dollar Aerospace Parts Entity Strives to Generate

PE-Like Investment Returns with the Liquidity of a Public Market Stock

There is no greater satisfaction than

recruiting leaders that drastically

improve shareholder value. When

working with our private equity

clients, sometimes we are asked

to place C- and VP-level executives

in companies that are especially

challenged and need significant

transformation. In others, the

performance of the company is quite

good and the investors are at a point

in their investment lifecycle where

they are ready to explore liquidity

options like an initial public offering

(IPO). In those cases, we are often

required to find CEOs, CFOs, and

other executives who have more

experience with the structure and

issues that will need to be addressed

with a new capital structure and set

of regulations.

Recently, we have been fortunate

to work with a company that is

often viewed as one of the most

compelling examples of value

creation in the history of private

equity investing; Transdigm Group.

Transdigm began its journey

towards stardom with a $50 million

acquisition of an aerospace parts

company in 1993 by Nick Howley

and his two partners. Nick is the

current CEO of the company, and

one of the other original partners,

Doug Peacock, is still on the Board.

Today, after growing through

private equity ownership (Odyssey

Investment Partners, Warburg Pincus)

and an IPO in 2006, the company

generates nearly $3 billion of revenue

per year with EBITDA margins

that approach 50 percent. Based

in Cleveland, OH, the company

operates more than 30 standalone

operating units—mostly domestic—

that range in size between $20 and

$200 million in revenue. More of a

portfolio of businesses than a tightly

integrated entity, Transdigm manages

its balance sheet strategically, using

debt to realize its aggressive M&A

aspirations and to monetize equity

for its shareholders. Importantly,

equity for the executive management

team does not vest according to

public market stock price; rather

equity vests based on the annual

achievement of a well-defined IRR

target. On a multiple of EBITDA,

Transdigm is worth something in the

range of $20 billion today.

So, why would such a great

company with stellar operating and

financial performance need our

assistance? After terrific performance

over many years, the time had

come for succession planning. The

company’s longtime COO was

retiring and the CFO would also

be leaving over the next couple

of years. A formalized succession

plan was required, and Transdigm

engaged DHR to assist in their search

for a Division President & Chief

Operating Officer and an Executive

Vice President & Chief Financial

Officer. Kevin Stein, former EVP and

President at Precision Castparts,

was placed as President & COO of

the Power Group (overseeing about

one-half of the company’s revenue).

Terry Paradie, former Chief Financial

Officer at Cliffs Natural Resources,

was recruited as EVP & CFO.

“DHR did a nice job understanding,

prioritizing and staying focused on

what we consider a very unique

culture and operating model here at

Transdigm—one that emphasizes real

value creation as the mantra of what

we do tied to direct non-political

communications amongst the

management team and throughout

the company,” noted Nick Howley.

DHR did a nice job understanding, prioritizing and staying focused on what we consider a very unique culture and operating model here at Transdigm…


Spotlight on our Industry Experts: Steve Godwin, Executive Vice President, Industrial Practice, Atlanta, GA

After successfully building and

running his own retained search

firm for more than a decade,

Steve joined the team at DHR in

2014. Steve specializes in serving

industrial manufacturing, services,

and distribution businesses with

middle market private equity fund

portfolio companies. Clients

include firms such as AEA,

Ontario Teacher’s Pension Plan,

the Riverside Company, Berkshire

Partners, and numerous smaller

funds. He has been in the search

industry for 18 years.

How are things going at DHR and

what is the benefit that you have

gained being in a larger firm?

Everything is going great. As a

business owner and entrepreneur,

I resisted joining a larger platform

because I enjoyed running my own

business, and believed that my

boutique could serve the needs

of most funds. The private equity

industry has evolved over the years

and partners and principals are

demanding specialization in industry,

function, and often times prefer that

a search firm has some presence

in close proximity to a portfolio

company. I had a large fund tell me

one time: “Steve, we will continue to

use your firm for industrial portfolio

companies in the southeast, but

that’s it.” At that point, I realized that

I was limiting my world, so to speak.

Now, I have industry and functional

expertise throughout the world,

and partners who have depth in

DHR Assists in Senior Level Succession Planning continued

“We are also a very decentralized

and entrepreneurial company with

minimal corporate staff. Someone

who does not understand how

to improve EBITDA margins and

wants to build an empire with lots

of corporate perks just would not

fit here. These were important

elements in the spec and certainly

affected the ultimate hiring decision

to bring on Kevin and Terry.”

Nick Howley and Transdigm are

actually featured in a book authored

by Will Thorndike, Managing Partner

at Housatonic Partners, called

“The Outsiders: Eight Unconventional

CEOs and their Radically Rational

Blueprint for Success.” In that book,

Thorndike makes the case that it is

wise capital and resource allocation

decisions that truly distinguish great

CEOs (and their management teams)

in terms of financial performance. As

Thorndike explains: “CEOs need to

do two things well to be successful

in the long-term: run their operations

efficiently and deploy the cash

generated by those operations.

Capital allocation is essentially

investment and, as a result, CEOs

working with their Boards need to be

both capital allocators and investors.

While CEOs have a wide range of

responsibilities, this one just might be

the most important of all.”

We are honored to be part of the

Transdigm story. Success was driven

by our understanding of our client’s

prerequisites for their leaders; a

maniacal focus on value creation

linked to the EBITDA performance

of the business; and a thought

process that ensures key staff think

like “owners of the business” when

it comes to allocation of precious

capital along the way.


Spotlight on our Industry Experts continued

private equity, which is actually

uncommon, even among many

of the larger firms. These factors,

combined with an entrepreneurial

environment, have provided me, and

more importantly my clients, with

great experiences to date.

How are you feeling about the

activity in the private equity world

right now?

Well, we are certainly busy but

there is obviously a lot of capital

chasing a relatively small number of

deals. Given the market conditions,

transactions are frequent, both to

strategic buyers and other financial

sponsors. In greatest demand

seem to be CFOs that can operate

in the private equity sponsored

environment. Most PE partners and

principals are finance executives.

We all gravitate toward what we are

most comfortable with and most

knowledgeable of, and that is one of

many reasons we are conducting a

lot of CFO searches. To add, private

equity owners require much different

talents and desired outcomes from

their CFOs than other traditional

ownership structures. We are

also becoming more involved

with C-level recruitment prior

to a transaction. This is a new

development, and it requires our

ability to “sell” an opportunity to a

candidate. However, it accelerates

a private equity fund’s returns, and

in turn, exit. And perhaps stating the

obvious, we have found that our

effectiveness is drastically increased

when conducting recurring work for

a fund and their portfolio companies.

Often times fund partners become

so focused on qualifying a firm

by industry, function, and/or

geography. Without question, these

factors are important. I would argue

however, a history of success is

the most important factor when

predicting future results. Knowing

a fund’s tendencies, their process,

and personalities is so important

to serving them at a high level. If

you have that base of knowledge

from past experience, you will most

likely produce improved results as

time goes by and you continue to

conduct recurring work.

Is there something unique about

doing search work in the PE world?

They demand more from search

firms and value superior talent,

which creates more value to

your services, and enables you to

separate yourself more easily in

the market. More than ever, I think

fund personnel understand that

talent is one of two or three major

factors that will influence returns.

As such, you need to operate at a

high level, but if you produce results,

you will be rewarded. Personalities

are different among private equity

firms than in large enterprise clients.

Making sound, quick decisions is

required, and industry expertise

and experience with funds is also

needed. The private equity industry

is fairly close knit, so your reputation

typically precedes an introduction.

Knowing a fund’s tendencies, their process, and personalities is so important to serving them at a high level.

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DHR Quarterly Private Equity Report - July 2015