Get the expert consensus on the most powerful value creation drivers in today’s private equity climate.
At TBM, we have been helping private equity clients tackle the challenges that come with the higher interest rates and longer holding periods that we’ve been seeing over the past 12 to 24 months. As in any economic climate, our goal is always to maximize value creation by pulling the right levers at the right time.
And we could not be more excited to hear how other industry experts are approaching these very same issues.
We’ll get the chance next month when we do a dive deep into the topic at the . We are honoured to be moderating a discussion, Generating Alpha: Value Drivers in Private Equity Across Market Cycles, on September 4. The scheduled panelists include Tommy O’Sullivan, Managing Partner at Beach Equity; Freya Macken, Principal at AURELIUS Investment Advisory; Lou Gueroeva, Senior Manager of Zanders UK Limited; and John C.R. Nery, Managing Director and Head of Investments at Squircle Capital.
With this lineup, we’re sure to uncover some interesting insights on the hottest topics in value creation today. We expect to explore many of the following issues:
- Finetuning the exit strategy. With extended holding periods, PE firms have more opportunities to enhance their portfolio companies’ performance prior to exit. Operational excellence and strategies such as value engineering, applying lean principles, and promoting continuous improvement may become increasingly attractive as ways to remove costs and boost EBITDA, especially during the last 12 to 18 months of the holding period.
- Increasing asset utilisation. When it comes to assets of all types— including machines, cash invested, people, and materials—companies are rarely ever operating at full capacity. Any portco struggling to meet demand may want to look at overall equipment efficiency first before investing in new production capabilities and can often find the capacity they need without any additional OpEx. At the least, they will find opportunities to maximize current lines before investing in new ones.
HR processes, including candidate selection processes, onboarding, and retention strategies, are another important avenue for optimising assets. Companies that make the effort to improve in these areas can often enhance productivity while preventing expensive employee turnover.
- Upgrading sales and operations planning (S&OP). When companies grow, strategies, tactics, and operational processes don’t always grow with them. Most companies have opportunities to introduce more sophisticated demand forecasting tools and inventory management systems, including advanced analytics, that can better align production schedules with market demand. Beyond tools, cross-functional collaboration and breaking down silos between departments is also key to enhancing S&OP processes. By fostering better communication between sales, production, and logistics, PE firms ensure that the entire company is aligned on goals, leading to more efficient operations and improved customer satisfaction.
- Consolidating operations and standardising processes. The buy-and-build strategy is a key tactic in the PE playbook that allows organizations to grow rapidly. Integrating multiple companies to create synergies, consolidating operations, and standardising processes across all holdings are tactics that go hand-in-hand with the buy-and-build strategy and are essential to making the approach successful. Each effort helps eliminate redundancies, streamlining and improving processes and functions across the operation, including planning, procurement, plant support, and back-office functions such as finance, HR, and IT.
Ultimately, consolidation and standardization reduce costs and introduce economies of scale that can make portfolio companies much more efficient. For example, consolidating several companies’ separate warehouses include a single, optimized distribution centre can have a significant positive impact on the bottom line. At the same time, unifying procurement processes across all companies within the portfolio can lead to better supplier terms and reduced costs. Similarly, standardising IT systems can reduce the complexity and cost of managing multiple platforms.
- Optimizing logistics and distribution networks. Beyond consolidating warehouses, PE firms often have opportunities to optimize transportation routes and delivery schedules to improve customer service and reduce costs. Using advanced routing software is an example of one way that companies can explore how to create the ideal delivery schedule for lowering fuel consumption while increasing delivery efficiencies.
- Encouraging positive behavioral and cultural change. The role of human capital is sometimes overlooked as a value driver, but manufacturers must understand that, to achieve breakthrough performance, the right human behaviours and culture are just as critical as the right processes. Leadership dynamics along with a culture that encourages and rewards employee engagement and problem solving at all levels of the organization lead to the sustainable gains and continuous improvement environment that are so fundamental to long-term value creation.
Join us to hear the value creation dialogue first-hand.
These are just a few of the strategies TBM uses in our value creation work, and we’re looking forward to our upcoming conversation at the PE Insights Conference, London, to explore these and other best practices. We hope you’ll consider joining us to hear everything these experts have to say. Also be sure to stay tuned for our recap of what we fully anticipate will be an exciting and timely discussion as we dive deep into value creation and what’s working best in today’s challenging environment.
