Baird’s operational resources drive profit and exit value at Paddock
November 30, 2010
Baird Capital Partners Europe (“Baird”) exited Paddock Fabrications in August generating a 2.7x return for its funds.
Over the course of Baird’s investment and despite the recession:
Baird Portfolio Director, Dennis Hall, explains how Baird’s operational focus and Asia resource base drove the return.
Through this process we developed the current factories that are Paddock’s main Asia supply relationships. As well as bringing a further ‘price down’ benefit, these selected factories have been more reliable and with better capabilities giving Paddock essential ‘confidence of supply’.
iii) Re-engineering of Products
Our team understands the different skill-sets and cost bases of Western and Asian manufacturer. Utilising this they facilitate cost down projects. Two examples for Paddock are:
Baird’s combined volumes enable it to negotiate group freight rates to the benefit of the portfolio.
Retaining UK control and local Chinese design skills, cheaper packaging solutions were introduced. The subsequent benefit of this is that product no longer has to be sent to the UK, broken down, put into customer order groups and reshipped. It can often be shipped with limited UK ‘touch’ or even shipped direct.
vi) Working Capital
Cash is king and the Baird Asia team understands the importance of working capital management in our businesses. As such, they work to build supplier confidence and to negotiate the best commercial package including payment terms. For Paddock, this meant the transition from cash on order to Letter of Credit on shipment to 60 day terms. With better planning and supply chain transparency, lead times have improved with the suppliers holding some local stock buffers on call off and lead times moving to 20 days from Purchase Order to shipment on bulk orders - 1/3rd of what it was.
So it is not just about the initial product price, Baird Asia has a much wider capability to continuously improve product margins, supply chain capabilities and to develop the entire service model. The benefits are clear - in combination, all of the above drove Paddock’s increasing market share and considerably higher GMs even through the recession.
Process Outsourcing – Leveraging India
The exercise of taking processes offshore to attain a cost and flexibility benefit has been widely applied across the Baird portfolio in functional areas as diverse as quality, payroll, compliance, development, testing and R+D/drawing.
For Paddock this applied to two areas:
The growing appetite and buying power of Asian businesses and consumers is an important opportunity for our portfolio and an increasing focus for the Baird Asia resource. The team is able to:
As a result Paddock achieved its first sales into China with Vietnam orders to follow. More importantly, the creation of a market presence in Asia brought strategic value which contributed to the overall return to the shareholders.