Positioning for Growth in Uncertain Times

 

https://tinyurl.com/4mkb3e48

Most business leaders think Finance is for CFOs.

 

Most business leaders think Finance is for CFOs.

That’s why they make bad decisions.

Because every business decision is a Finance decision.

Where capital is sourced and deployed.

Where returns are generated and reinvested.

Where cash moves in and out—and whether it's managed effectively or wasted.

If you don’t understand finance, you’re leading blind.

Let’s change that.

Here are 10 Critical Finance Topics Every Leader Must Master

↳ Finance Strategies – How to source and deploy capital.

↳ Cash Flow Mastery – Understanding critical inflows and outflows.

↳ Financial Analysis – Ratio analysis, trend analysis, and key insights.

↳ NPV, IRR, and Payback – Making better investment decisions.

↳ The 3 Financial Statements – Connecting the P&L, Balance Sheet, and Cash Flow.

↳ Capital Budgeting – Evaluating long-term investments.

↳ Profit vs. EBITDA vs. Cash Flow – Seeing beyond profitability.

↳ Cash Flow Drivers – Managing operations, investments, and financing.

↳ Key Performance Metrics – EBITDA, cash flow, and profit KPIs.

↳ Cash Flow Statement Breakdown – Knowing where your cash is really going.

Master these, and you won’t just run a business—you’ll scale it intelligently.

https://tinyurl.com/54cmz83s

Investors Want to Know Your Sustainability Business Case

 

By Alexis Colombo, Gerry Hansell, Jesper Nielsen, and Sam Farley

With so many companies investing behind their net-zero commitments—and half of all assets under management held by investors committed to sustainable investing—why do so few business leaders feel that investors are giving them credit for their
sustainability investments?

We set out to answer that question and, in fact, found no correlation between the environmental component of a company’s overall ESG score and how much the market rewarded its sustainability efforts. At the same time, we knew that many companies were rewarded by investors for smart sustainability strategies. Maximizing your ESG score is important, but in our experience, the best sustainability strategies go beyond just checking all the boxes. Rather, they check some boxes—those that enhance competitive advantage—more than others. After all, with attractive and growing green profit pools across nearly all sectors, it should be possible to chart a value creation strategy that’s green in more ways than one.

Given that starting point, our hypothesis was that investors favor sustainability moves with a compelling business case over ones with a less clear economic rationale. Using this lens, we evaluated a rich dataset of sustainability-related initiatives announced between 2015 and 2022 by the world’s largest public companies, seeking to identify which elements of a thoughtful, verifiable business case were part of each one. We then looked at the market’s reaction—and confirmed that initiatives with a more robust business case created more value. (For more on our methodology see “About the Research.”)

ABOUT THE RESEARCH

We also found that greenwashing doesn’t work. Companies that issued a lot of announcements mentioning few business case elements were punished. Investors reward a compelling narrative grounded in a smart sustainability strategy that focuses on the material moves that drive competitive advantage. Companies that are clearer about the intersection of their sustainability and value creation agendas may even help bridge the “great disconnect” highlighted in our previous research between institutional commitments at investment firms and the actual investment criteria used by portfolio managers.

Elements of a Sustainability Business Case

Between 2015 and 2022, only 20% of companies saw a positive market reaction to 75% or more of their sustainability-related announcements—and nearly a third saw half or more of their announcements destroy value. (See Exhibit 1.) Moreover, after three days, the aggregate of announcements we studied didn’t deliver a shareholder return distinct from that of the overall market. But when we applied the business case lens, our hypothesis was confirmed. Those sustainability-related announcements that included some or all of the following seven elements associated with a strong business case did create value:

• Material to the Company. The effort is big enough to make a difference given the scale of the company.
• Material to the Sector. The investment area is seen by the Sustainability Accounting Standards Board as a material environmentally related disclosure topic. For example, in automotive, SASB calls out fuel economy and use phase emissions, material sourcing, and materials recycling as the critical disclosure topics.
• Connected to the Core. The initiative is tied to the company’s core strategy.
• Clear on Funding. The announcement discusses the investment’s magnitude and sources.
• Tangible Goals. The company offers a way for investors to monitor progress, such as a revenue target or deadline.
• Third-Party Verified. Progress will be audited by a trusted external entity such as the Science-Based Targets Initiative, which can attest to member companies’ progress toward their net-zero goals.
• Drives Value Creation. The announcement describes the move’s potential financial upside for the company.

We found that the presence of any of these business case elements on its own in an announcement creates value. (See Exhibit 2.) What’s more, articulating the potential value creation upside of a sustainability move delivers twice the positive impact of any of the other six elements.

It shouldn’t be hard to find sustainability investment opportunities in nearly every sector that are a win-win for both the planet and investors. In auto and mobility, it’s being on the right side of the transition from internal combustion to vehicles powered by electricity or hydrogen. In mining and materials, it’s capturing an advantaged position in critical minerals like the rare earths essential to the battery technology that supports the electrification of everything. (BCG’s 2021 Value Creators Report, “Value Creation in a Decarbonizing Economy,” offers additional perspectives.)

Better Business Cases Create More Value

Obviously, no single one of the seven elements on its own constitutes a real business case. But in combination they do. The best companies are saying, We’re doing something sustainability-related that addresses a big issue facing our industry. And not only that: the move is consistent with our strategy, is related to our core business, has the potential to deliver a material financial upside—and here’s how to track our progress. That’s five business case elements that tell a compelling investor story.

Our deep dive into three sectors—mining, auto, and consumer goods—demonstrated the impact of this approach. We selected mining and auto because their traditional business models are threatened by the climate transition—and both have potentially attractive future profit pools. We selected consumer goods to see if our findings in mining and auto would hold true in a sector less existentially challenged by climate and sustainability megatrends.

For example, the best-performing announcement for Stellantis (formed from the merger of Fiat Chrysler and PSA Group) concerned a $223 million investment in three Indiana-based plants that would support the company’s goal to have low-emission vehicles account for 40% of its US sales by 2030. And that announcement included six out of seven of our essential business case elements.

Across all three sectors, announcements that incorporated five or more of the business case elements outperformed those that included two or fewer by 2.1 percentage points. (See Exhibit 3.) And the outperformance was even greater when one of the elements was a discussion of how the move would drive future value creation.

In consumer goods, the business case effect was less pronounced but still observable, suggesting that all companies can benefit from applying this lens when setting and communicating their sustainability priorities.

Among mining companies, for example, Fortescue stood out with 41% of its announcements citing five or more business case elements. Of those, 86% created value—the sole exception announced a possible $8 billion investment with no mention of its potential value creation impact. The company’s best-performing announcements all related to initiatives driven by Fortescue Future Industries, a new division established in 2018 to produce green hydrogen using energy from 100% renewable sources. One of FFI’s best performers was a 2022 announcement (citing five business case elements) of a partnership with European energy leader E.On to explore the feasibility of shipping 5 million tonnes of green hydrogen to Europe by 2030—enough to replace one-third of the natural gas Germany imported from Russia each year until recently.

Quality and Consistency Are Rewarded

Our research also revealed that companies with a track record of consistently communicating strong sustainability business cases are disproportionately rewarded. Companies generally outperformed when about one-fifth or more of their sustainability announcements included five or more of the seven business case elements. (See Exhibit 4.)

And up to a point, those that issued more best-practice announcements got better results. Our analysis suggests that for sustainability-related announcements featuring a clear business case, the sweet spot is between one and two per quarter (the green area in Exhibit 4); companies issuing more than that saw lower returns. We also found that greenwashing doesn’t pay. Companies that made a lot of low-quality announcements (the orange area in Exhibit 4) actually destroyed value.

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Strategy is about making choices. Ultimately, the best way to create value with sustainability is to concentrate on the things that make a difference for both the planet and your competitive advantage. Well-articulated moves that position a company to win in a decarbonized world are rewarded. Our research necessarily focused on what companies announce, but the findings are about more than the words you use. You can’t articulate a compelling business case if you don’t already have a thoughtful sustainability strategy guiding your investment priorities. In the final analysis, that’s what investors want.

https://www.bcg.com/publications/2023/investors-want-to-know-your-sustainability-business-case

Largest Pharma Companies by revenue, 2016-2022

 

https://cutt.ly/G5xLIV9

The 25 Largest Private Equity Firms in One Chart

 

By

 Omri Wallach

Frequent the business section of your favorite newspaper long enough, and you’ll see mentions of private equity (PE).

Maybe it’s because a struggling company got bought out and taken private, just as Toys “R” Us did in 2005 for $6.6 billion.

Otherwise, it’s likely a mention of a major investment (or payout) that a PE firm scored through venture or growth capital. For example, after Airbnb had to postpone its original plans for a 2020 initial public offering (IPO) in light of the pandemic, the company raised more than $1 billion in PE funding to plan for a new listing later this year.

Yet many people don’t fully understand the size and scope of private equity. To demonstrate the impact of PE, we break down the funds raised by the top 25 firms over the last five years.

How Private Equity Firms Operate

First, we need to differentiate between private equity and other forms of investment.

A PE firm makes investments and provides financial backing to startups and non-public companies (or public companies that are being taken private).

Each firm raises a PE fund by pooling capital from investors, which it then uses to carry out transactions such as leveraged buyouts, venture and growth capital, distressed investments, and mezzanine capital.

Unlike other investment firms such as hedge funds, private equity firms take a direct role in managing their assets. In order to maximize value, that can mean asset stripping, lay-offs, and other significant restructuring.

Traditionally, PE investments are held on a longer-term basis, with the goal of maximizing the target company’s value through an IPO, merger, recapitalization, or sale.

The List: The Most PE Funds Raised in Five Years

So which names should you know in private equity?

Here are the largest 25 private equity firms by their five-year PE fundraising total over the last five years, with data on funds and investments from respective firms and Private Equity International.

They include well-known private equity houses like The Blackstone Group and KKR (Kohlberg Kravis Roberts), as well as investment managers with private equity divisions like BlackRock.

Rank	Private Equity Firm	5-Year Funds Raised ($B)	Notable Current Investments
1	The Blackstone Group	95.95	Refinitiv, Merlin Entertainments
2	The Carlyle Group	61.72	ZoomInfo, PPD
3	Kohlberg Kravis Roberts & Co.	54.76	Axel Springer SE, Epic Games
4	TPG Capital	38.68	Cirque du Soleil, Cushman & Wakefield
5	Warburg Pincus	37.59	Airtel, Sundyne
6	Neuberger Berman	36.51	Marquee Brands, Telxius
7	CVC Capital Partners	35.88	Petco, Premiership Rugby
8	EQT Partners	34.46	Dunlop Protective Footwear, SUSE
9	Advent International	33.49	Cobham, Serta Simmons Bedding,
10	Vista Equity Partners	32.1	Finastra, Mindbody

11	Leonard Green & Partners	26.31	Lucky Brand, Signet Jewelers
12	Cinven	26.15	Kurt Geiger, Hotelbeds
13	Bain Capital	25.74	Virgin Voyages, Canada Goose
14	Apollo Global Management	25.42	ADT, Chuck E Cheese's
15	Thoma Bravo	25.29	Dynatrace, McAfee
16	Insight Partners	22.74	Monday.com, HelloFresh
17	BlackRock	22.46	Authentic Brands Group, Qumulo
18	General Atlantic	22.42	Airbnb, Vox Media
19	Permira	22.21	Dr. Martens, Informatica
20	Brookfield Asset Management	21.69	Multiplex, Westinghouse Electric

21	EnCap Investments	21.33	Pegasus Resources, Lotus Midstream
22	Francisco Partners	19.13	Verifone, GoodRx
23	Platinum Equity	18.00	Livingston International, Palace Sports & Entertainment
24	Hillhouse Capital Group	17.89	Miniso, Belle International
25	Partners Group	17.87	Civica, KinderCare Education

Most of the world’s top PE firms, including TPG Capital (which invested in Ducati Motorcycles, J. Crew, and Del Monte Foods) and Advent International (an early investor in Lululemon Athletica) are headquartered in the U.S.

In fact, of the largest 25 private equity firms in the last five years, just four are headquartered in Europe (CVC, EQT, Cinven, and Permira) and one in Asia (Hillhouse).

Another name that might be recognizable is Bain Capital, which was co-founded by Utah Senator and former Republican Presidential nominee Mitt Romney and found success with investments in AMC Theatres, Domino’s Pizza, and iHeartMedia.

Famous Private Equity Investments

One of the most surprising things investors discover about private equity is how many large organizations have been funded through the PE world.

More well-known investments include KKR’s $31.1 billion takeover of food and tobacco conglomerate RJR Nabisco in 1989, and Blackstone’s $26 billion buyout of Hilton Hotels Corporation in 2007.

But other well-known companies have been funded, saved, or restructured through private equity. That list includes grocery chain Safeway, fast food chain Burger King, international racing operator Formula One Group, and hotel and casino company Caesars Entertainment (then called Harrah’s Entertainment).

Many other notable investments could soon pay off for private equity. With IPOs back in season, tech companies like Airbnb and Epic Games are ripe for payouts. At the same time, restructuring companies like J. Crew and Chuck E Cheese’s always offers a chance to recapitalize.

With the COVID-19 economic downturn resulting in newly distressed companies and potential takeover targets, expect the private equity world to be very active in the foreseeable future.

https://bit.ly/3BSKC1B