Beyond the bottom line: How PIF is finding value in operational efficiency

“If you go back 20-plus years in the private equity arena, value is mainly driven by financial leverage. I buy it at a multiple of X and sell it at a multiple of Y,” says Raid Ismail, Head of Direct Investments for the Middle East and North Africa at PIF. “Fast forward to where we are today, and value creation is driven by operational enhancements – improving systems and processes and culture.”

PIF did more than recognize which way the wind was blowing in private equity trends; it identified how this method can connect with the sovereign wealth fund’s mandate to be an active, impactful investor.

Financial support is crucial, of course, but PIF does much more than simply cut a check when it works with its dozens of portfolio companies. With a commitment to knowledge sharing and indirect spending, PIF launched the Operational Value Creation Group (OVCG) to embody this hands-on approach.

The OVCG was started with data-driven collaboration in mind, connecting like-minded portfolio companies and encouraging them to learn from each other’s successes in order to achieve sustainable long-term returns.

“OVCG is a component of PIF’s active management approach, which means we engage with our portfolio companies to deliver sustained economic performance,” says Alessandro Moretti, Senior Director of OVCG. “Together, we devise a valuation plan that is tailored, prioritized and focused on delivering value.”

The group has worked with more than 10 PCs that represent about $25 billion in AUM, working alongside management teams to optimize cost structures, reimagine supply chains and develop new methods to boost the bottom line. Arabian Drilling is among its early successes.

Founded in 1964, the oilfield services company is a preferred partner of major oil & gas (O&G) companies, operating 45 rigs (and counting) in Saudi Arabia. It turned to OVCG to analyze, and ultimately enhance, operations.

Together, they identified the rig move – the process of disassembling and moving an oil rig across a distance of 100 kilometers in just one week, for example – as an area that could be optimized. Using Six Sigma methodologies to slice this complicated process into 15-minute activities, OVCG then analyzed the sequence and identified ways to compensate for plateauing performance.

“Across the fleet, we move about 185 times a year,” explains Stephane Moynet, COO of Arabian Drilling. “Thanks to OVCG, we’ve shaved about three days off of each rig move. Three days doesn’t sound like much, but every day we save is a day of revenue. That’s a year and a half of extra revenue that goes straight to the bottom line.”

The timing couldn’t have been better. Arabian Drilling turned to OVCG in the run-up to its IPO in late 2022, and the 60-year-old company’s willingness to reexamine existing operations – and to spot new profit streams – contributed to its market success. The IPO was fully covered within hours of opening for subscription, raising $712 million, and shares jumped by 20% on the first day of trading.

With these learnings in place, Arabian Drilling will continue to scale its onshore and offshore operations, with the confidence that future investments will be made intelligently and efficiently – based on data and rooted in a commitment to identify (then remove) bottlenecks to profitability.

“Arabian Drilling is a successful company that has received awards for operational excellence,” Moretti says. “The fact that OVCG was able to improve their core business is a clear example of the capability that we can deliver to our portfolio companies.”

It is also another validation of the PIF Way, a framework the fund established to empower leadership, improve decision making and generate value for companies and society.

For Ismail, it’s rewarding to see this vision bear fruit, and he believes that PIF’s approach can benefit anyone in senior leadership. “As an ex-CEO of various companies, sometimes you don’t see the forest for the trees,” he says. “It helps to have somebody look at things differently and double-click down on the key elements that can enable you to enhance value.”

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