Walker Review How should PE firms respond? Changing the Business Landscape

Contents Why did we need a Walker Review? Industry reaction Implications for those affected Who should do what? How should we do it? Next steps

Why did we need a Walker Review? Equity + = Good Business! Monetary value Fairness Equity

Why do we need a Walker Review? Pressure from: Employees Unions Politicians Media Public Transparency and accountability gap General Partners Portfolio companies Limited partners Greater openness demanded for buyouts Employees Customers Suppliers Wider community Policies Environment Private Equity needs to respond to criticism B “The industry has come to be seen as needlessly secretive, feeding suspicion…” Walker Review VAC

Industry reaction* “We take the Walker Review very seriously” “We are already fully compliant” “We are waiting to review the full implications” “This is a political initiative which needs careful handling” *Telephone conversations, independently conducted with a cross section of PE firms indicate a varied response to Walker

Implications for portfolio companies Narrative on performance, approach to business, and values affecting: employees, customers, suppliers, wider community, policies and environment Annual report 6 months after year end Board composition Fund(s) that own the company Senior managers in PE firm having UK responsibility of the controlling fund Short statement <3 months from mid-year Financial statement for debt showing: – level, structure, conditionality Portfolio companies General Partners Voluntary guidelines, but PE Houses failing to conform to good practice will be open to critical public scrutiny BVAC Limited partners

Portfolio companies General Partners Limited partners Implications for General Partners “It is important to realise that no organisation exists separately from the wider community…” Walker Review Narrative on approach to business, and values affecting: employees, customers, suppliers, wider community, policies and environment Annual review on website – governance and values of portfolio companies Leadership team Performance of funds Categories of limited partners Commitment to conform to guidelines BVAC

Portfolio companies General Partners BVAC Limited partners Implications for BVCA BVCA will promote a better understanding of how private equity operates and of its potential contribution to the UK economy Promote PE commitment to the guidelines Undertake rigorous evidence-based analysis of the economic impact of private equity activity Build a database of experience Develop improved standards for fund performance measurement “ Private can no longer mean private” Walker Review

Who should do what? Change and engagement strategy Communications strategy Employees Behaviours Brand values Organisation structure Unions Terms and conditions Roles and responsibilities Culture Business performance Business processes IT systems Synergies Suppliers Supply chain Requirements Quality Customers Commitment Quality Focus Wider community Employment Social and education Brand promise Policies Clarity Commitment Access Environment Conservation Regeneration Safety Communications, Communications, Communications - combined with a strategic change programme will deliver needed openness in private equity

Benefits Equity + = Good Business! Monetary value Fairness Equity

How we do it – strategic change Deal StageApproach In advance Due diligence Risk analysis Review organisation effectiveness and culture compatibility Assess likely resistance to change and prepare change strategies Review where synergies are likely to come from and how to achieve these across the whole business During the deal Transition planning Business and change plan 100 and 50 day plans Engage stakeholders and wider environment Plan resourcing Plan risk minimisation Implementation Programme Management Integrate organisations, systems and processes Manage the risks Deliver the benefits for the wider community Support the top team Post implementation review Review of process and outcomes Assess benefits and improvements in relation to costs and risks Capture the learning

Next steps Realise this is not a ‘political initiative’ Consider the full implications for your business and the industry Develop well structured strategic change plans to embrace the wider issues Do your work in such a professional way that critics will be disarmed Communicate, communicate, communicate!

Labovitch is a strategic change consultancy specialising in: Private Equity Mergers and Acquisitions Turnaround Business engagement of brand Our core skills are: Managing change Business strategy Organisation design People behaviour Information systems integration Process improvement …………………anticipating pitfalls………………….. Strategic, Comprehensive, Practical, Experienced and Balanced