Transforming for long term growth
Updated: Dec 21, 2021
At a first glance, the Credo portfolio of companies appears to be a random collection of non-related enterprises, begging the questions: 1) Is there any common denominator/red thread/ or investment strategy guiding Credo´s investments; and, 2) How can Credo add value to such a diverse group of companies?
While it is a relevant question to ask what an IT company, an Italian restaurant chain, a Danish wine producer, an equipment producer for the Fish farming industry, a group of electro installation companies, a provider of assistive equipment to handicapped children, and a group of recreational vehicles and caravans have in common, it is our responsibility as owners and investors to be equally clear on why this first impression of randomness is completely wrong.
All these companies have one thing in common that fully reflects Credo´s investment focus: We invest in partnerships with founders and management that truly believe in the long term potential of their companies, but have the insight to conclude that to succeed they need a professional partner that can support transforming their companies on to a trajectory and platform for long term growth and success.
In our experience it is during this growth phase that small to mid-sized companies truly benefit from having a strong and experienced partner that can facilitate a fast-paced progression towards becoming a future sector leader and implement measures where risk and conditions for success are adequately addressed.
This is why Credo seeks balanced partnership investments with previous owners and management (typically 51 – 49%), and why we build our transformation and value creation journeys on a joint ownership ambition crafted together as partners at the entry point of our investment period.
Our responsibility then, which represents our side of the partnership obligation vis-à-vis the companies, is to transform these so that the inherent potential embedded in the enterprises can be realized for growth and long term success. Crafting this platform, and installing this into our portfolio companies, is what we consistently do across all situations we engage in.
This value creation approach requires significant hands-on involvement from Credo´s side, as a transformation for long term growth imply major changes in the operations of a company, typically require major changes within the following areas:
A more focused, and distinct strategy and value proposition;
An organization that becomes independent of founders and key persons;
A scalable business based on logical structures, defined processes, and leveraging key competencies;
A long term well defined growth arena, where ambitions can be discretely and repeatedly set for growth through several successive development eras.
Succeeding with developing and implementing such a transformative change program typically requires 4-5 years to fully see the results and further potential inherent in the new platform.
Credo is frequently asked why we do not have a longer investment horizon so that we can part-take in the vale creation from further scaling the transformed company. Our perspective on this is clear and unambiguous: Our value-add as co-owners is in the transformation for long term growth and success – this is what we do, and this is our specialty: We transform companies and institute a long term growth horizon in these.
As a specialist in scaling up businesses, we stick to our knitting. Indeed, we believe that every owner should regularly challenge itself on whether it continues to deserve the right to own the company in question over the next era. This is a tough question to face up to, but we believe that owners have a duty to challenge themselves on what value-add they bring to the company and when it is time to pass the baton on to an owner that is better qualified to support the company through the next era of developments.
As the results from the transformations come through, and the further future growth and development opportunities are evident, Credo can as financial investors ripe significant value from the operational transformation work and platform we leave behind in our companies. We believe that this strategic investment focus serves both our investors and our portfolio companies.
Therefore, our KPI for successful transformatory journeys should be reflected in financial multiple expansion throughout Credo´s ownership period. Credo´s performance record of 34% IRR over the past 10 years subscribe to maintaining this operational investment focus.