“Most private equity firms are very data driven,” said Rovak, the head of the firm’s strategy team. “You can’t wait for tons of industry data to point to an opportunity. If you wait for the data to move, you’re probably too late.”
The same is true of customer surveys, he said. While such efforts can be useful, they do not lead to the kind of innovation that can drive growth. “You cannot research your way to growth. You can’t just ask your customer what they want,” he said. “It’s not their job to invest for you.”
From its first engagement five years ago with Goldman Sachs Asset Management, private equity has grown to be half the 10-year-old firm’s business, with global strategics, the “Fortune 100,” constituting the rest, Rovak said. Fahrenheit 212 lists on its website a number of buyout firms that are clients, among them Bain Capital, The Carlyle Group, Wellspring Capital Management and Lincolnshire Management.
Fahrenheit 212 used to spend 80 percent of its effort on engagements during the hold period or at exit. Today the mix is 40 percent during due diligence, 40 percent during the hold period and 20 percent at exit.
Private equity investors have different needs for their portfolio from strategic owners, he said. While a company such as Mattel can “swing for the fences” with a multi-year horizon for initiatives to pay off, buyout shops typically want to bring new products to market within 18 to 20 months.
As an example, he cited Fahrenheit 212’s work with Nature’s Variety, a producer of raw pet food products that is backed by the Greenwich, Connecticut buyout shop, Catterton Partners. “When we got there, it was still relatively niche,” he said. Most pet stores lacked coolers to store the company’s products, and consumers had to face the “ick factor” of dealing with raw food.
Fahrenheit 212, working with the portfolio company, developed two new products for Nature’s Variety’s Instinct brand of raw pet food: One was a freeze-dried powder supplement to give owners of pets on conventional diets an easy way to incorporate the nutritional benefits of a raw diet into their existing feeding routine, while the other was a frozen raw kibble product that gives consumers the benefits of raw with the convenience of kibble. The approach eased adoption by making the new products convenient for the consumer, while taking advantage of the company’s existing strengths.
Nature’s Variety went on to win an innovation award from the Petco chain, leading to revenue growth and an expansion of the raw-food category, Rovak said. “Petco is going to put on the shelf whatever Nature’s Variety comes up with next,” he said. “You’ve not only created a win. You’ve created a halo effect.”
Fahrenheit 212 provides not just a roadmap for clients but puts its own revenue at risk, contingent on value creation, Rovak said. “We put capital at risk on every engagement.”
“The institutional investor’s playbook is expanding,” Rovak said. “Leveraging up is no longer enough. If you’re buying today, you had better see something that others don’t.”
Telephone: 646-654-1212
Email: TRovak@fahrenheit-212.com
Social media: https://www.facebook.com/Fahrenheit212; https://twitter.com/Fahrenheit212
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