Evoco AG: Unlocking Private Equity Potential Custom Case Solution & Analysis

I. Evidence Brief: Case Researcher

1. Financial Metrics

• Evoco AG (Swiss PE firm) manages 200 million Swiss francs (CHF).
• Target IRR for investors: 20% to 25% net of fees.
• Current fund performance: 12% IRR, trailing benchmarks.
• Management fee: 2% of committed capital.
• Carried interest: 20% over an 8% hurdle rate.

2. Operational Facts

• Team size: Five partners, two associates.
• Strategy: Mid-market buyouts, Switzerland and Southern Germany.
• Decision process: Unanimous partner approval required for all investments.
• Sourcing: Heavy reliance on personal networks; no formal proprietary deal-flow pipeline.

3. Stakeholder Positions

• CEO (Hans Weber): Favors conservative, low-leverage deals to preserve reputation.
• Junior Partners (The dissenters): Advocate for higher risk-adjusted returns through operational improvement (hands-on management) rather than purely financial engineering.
• LPs (Limited Partners): Increasingly frustrated by stagnant IRR and lack of exit velocity.

4. Information Gaps

• Detailed breakdown of portfolio company EBITDA growth vs. multiple expansion.
• Specific timeline for current fund maturity.
• Clarity on whether the current 12% IRR is due to asset selection or poor operational post-acquisition management.

II. Strategic Analysis: Market Strategy Consultant

Core Strategic Question

How must Evoco alter its investment thesis and internal decision-making to bridge the 8-13% performance gap and satisfy LP demands for liquidity?

Structural Analysis

• Bargaining Power of Capital: LPs hold significant power; the current performance makes fundraising for a successor fund unlikely.
• Competitive Rivalry: The DACH mid-market is crowded with well-capitalized firms using aggressive operational playbooks. Evoco is losing access to high-quality deal flow.
• Internal Governance: The unanimous voting requirement functions as a veto for risk-averse partners, stifling high-growth opportunities.

Strategic Options

• Option 1: Operational Turnaround Focus. Shift from financial engineering to an active-owner model. Requires hiring two operating partners. Trade-off: Increases overhead, dilutes carry, but aligns with modern PE success drivers.
• Option 2: Niche Sector Specialization. Focus exclusively on Swiss MedTech or Precision Engineering. Trade-off: Reduces deal volume but increases domain expertise and proprietary sourcing.
• Option 3: Partial Secondary Exit. Sell a portion of the current portfolio to a secondary buyer to return capital to LPs. Trade-off: Realizes losses now but clears the decks for a new, more disciplined strategy.

Preliminary Recommendation

Option 1 is the most viable. Evoco needs to move from passive oversight to active operational intervention. The firm must replace the unanimous voting requirement with a super-majority (4/5) to prevent paralysis.

III. Implementation Roadmap: Operations Specialist

1. Critical Path

1. Month 1-2: Governance restructuring. Amend the partnership agreement to move from unanimous voting to super-majority.
2. Month 3-5: Talent acquisition. Hire two operating partners with proven track records in industrial automation or healthcare.
3. Month 6-12: Portfolio audit. Identify two assets for immediate operational intervention; divest the lowest-performing asset to generate liquidity.

2. Key Constraints

• Partner Culture: The CEO’s risk-aversion is the primary blocker to change.
• Talent Gap: Finding operating partners who fit the Swiss culture while possessing the grit to drive change is difficult.

3. Risk-Adjusted Implementation

If the CEO resists governance changes, the junior partners must signal intent to spin off. Contingency: If operational hiring fails, partner with a specialized consulting firm on a project-basis to avoid fixed cost overhead during the transition.

IV. Executive Review: Senior Partner

1. BLUF

Evoco is failing because its governance structure rewards status quo and its strategy relies on financial engineering in a market that demands operational excellence. The firm must immediately switch to a super-majority voting model and pivot to an active-owner strategy. If the CEO refuses to relinquish the unanimous voting requirement, the firm will continue to atrophy until the current fund expires. The priority is not finding more deals; it is fixing the internal mechanism that prevents bold decision-making.

2. Dangerous Assumption

The belief that hiring operating partners will solve the performance issue. Without changing the underlying voting structure, any new operating partner will be neutralized by the existing veto-heavy partner culture.

3. Unaddressed Risks

• Key-Man Risk: If the CEO departs due to these changes, the firm loses its primary connection to the LP base.
• Market Timing: The DACH mid-market may be at a cycle peak; waiting to exit underperforming assets could result in further write-downs.

4. Unconsidered Alternative

A full merger with a larger, operationally-focused firm. Evoco lacks the scale to build an internal operating team from scratch. Selling the firm to a larger player would provide LPs with liquidity and the team with a platform that already has the required operational infrastructure.

Verdict: APPROVED FOR LEADERSHIP REVIEW