Fireside Chat, Interview
Inside Orlando Bravo’s Private Equity Playbook: How to Build a Top Firm
- The firm aims to sustain growth as a "change agent" within the US economy, anticipating a private equity landscape shift where new entrants must compete against established firms by leveraging entrepreneurialism and timing.
- Organizational strategy involves maintaining a focused team of approximately 230 people to remain outward facing, while each fund will be limited to a 10-to-12 company portfolio over a three-to-four year timeframe to ensure effective management influence.
- Investment activities will target only the top-tier market players to avoid expensive software transactions, requiring $10 billion assets to sell at 25x multiples to offset the scenario where they start 50% in the hole due to acquisition premiums.
- Portfolio operations will focus on turning innovators into profitable businesses by achieving 20% growth and 50% margins, with potential for an EBITDA multiple of 15 times against a 20 PE multiple to double asset value without heavy leverage.
- Profit optimization plans include cutting up to 10% from profits generally, noting that reductions beyond 20% are difficult as they require altering management decision-making structures, while relying on add-on acquisitions to drive bookings and growth.
- Leadership transitions will prioritize backing existing leaders who are open-minded and knowledgeable, with changes implemented alongside current personnel before considering other moves.
- Artificial Intelligence presents a dual outlook: adoption is viewed as evolutionary rather than revolutionary due to required ROI plans, yet it poses a significant risk by limiting investable verticals due to market confusion.
- To address AI-induced confusion, the firm plans continuous learning and updates driven significantly by younger employees, with the potential to use AI and offshore support to eliminate customer support calls entirely.
- The firm intends to remain private to serve its investor base effectively, projecting that investing in the next generation of entrepreneurs will generate more value than a public offering or selling the firm.
- The firm expects to maintain its current strategy without expanding beyond its technology focus, though Orlando Bravo notes that the political sentiment in Puerto Rico favoring statehood has grown significantly since past 90% election turnouts.