What’s your favorite deal or portfolio company that you’ve worked with recently, and why?
I worked a fair amount with Critical Flow Solutions, which we sold to Circor International in October for an enterprise value of $210 million. We did quite well on it. The company’s CEO, Ruben Lah, was not a traditional, highly polished Fortune 500 company executive. He was an industry veteran who literally woke up one night and sketched an invention on a pad of paper related to an operation that’s one of the most dangerous in oil refineries. He found a way to completely automate it and take people out of harm’s way. He invented this thing and drove the sales of it pretty maniacally over the course of our ownership. It was a lot of fun working with a guy who literally transformed something that most people would never see. The rest of his team was similar. All of them knew their business cold. It was a nice synergy with what we do — handle the professional operations side and financing — together with what they do. There was a lot of passion from them. You don’t always see that.
Do operating executives play a bigger, more influential role at PE firms today than in previous years?
If you compare it versus two decades ago, the answer is obviously yes. If you take a shorter-term perspective, it’s a more nuanced view. On the one hand, there is high and increasing pressure on firms to add value on the operations side. On the flip side, you have to remain focused on financials.
What was your first professional experience in driving operational improvements, and what lessons did you learn?
In one of my first professional experiences, I was consulting with a railroad that had committed to taking out $250 million of costs in order to get its earnings up. We looked at every five-year period in recorded history for U.S. railroads and generated a chart that showed changes in productivity and prices. We found that in every five-year period in history except two that the change in prices and productivity were within 20 basis points. The biggest takeaway from that is if you want net income to go up, you have to generate cost savings at a rate greater than your competitor. It was the first time I had to wrap my mind around a competitive market.
How do you adjust to working with an existing management team?
I’ve got decades of experience and I’ve seen a lot of situations. But if all I do is spend two hours a week with a company, I’m not going to know enough to add significant incremental value to management. At Sun Capital, we spend a lot of time getting to know how a company actually works. I see the job as less about being directive and more about being a valuable partner because you have something to say.
What’s your economic outlook for 2017?
Our view is that 2017 is going to look a lot like 2016 or 2015. We’re not expecting material growth or a repeat of 2008 and 2009. We’re expecting a choppy environment where customers in almost every industry are really pressured to make money. We want to create our own tailwinds rather than riding any economic tailwinds.
Edited by Steve Gelsi
Bruce Roberson, senior managing director, Sun Capital. Photo courtesy of the firm.