Highlights from the 2019 PEI Private Equity Operating Partners Forum

According to the operating partners we talked to at the most recent PEI Operating Partner Forum, the old days of private equity value creation are over.

Operations excellence has become increasingly important. Leadership capabilities, process improvements, and technology are critical levers to pull in the process—and the sooner you can get these right the better.

Watch the video to see how approaches to private equity value creation are shifting.

Forum participants give answers to these key questions:

• How is the role of the private equity operating partner evolving? Michael Kohlsdorf, President of Francisco Partners Consulting: “The old days of buying, financing and selling companies well, as it relates to return optimization, are pretty much over. You have to play the operations card and the way to do that is to have a dedicated team of operating partners on board to work with the CXOs and the deal team to truly optimize returns.”

• What’s the impact of the increased multiple purchase price on your acquisition hypothesis or decision to buy? Les Brown, Managing Partner at HGGC: “One thing we have found to be effective is in finding good platforms where we can use M&A to buy down our purchase price multiple over time as we enact a value creation model around M&A and what we’re able to do is buy down our multiple while expanding the service or the product offering, which help the multiple on exit, and that’s been a good combination.”

• Given the short time available in due diligence, how do you assess leadership capabilities? Thomas Fountain, Operating Partner at One Rock Capital Partners: “The leadership talent is absolutely crucial. In a 4-5 year holding period, there’s not a lot of time to get the leadership right, which of course sets the tone for everything to follow. We use a series of traditional benchmarks or templates to assess individual leaders, but importantly, we look at the aggregate leadership team and we see if there’s a high level of complementary skill sets or is everyone aligned to one particular area where it might have some gaps collectively. We really look at it both individually and holistically to say do we have the right coverage of the disciplines and the operational and the market expertise that we know the company will need going forward and where we don’t have that person-by-person, we’ll use that same matrix to say how can we go find a minimum number of new talent to fill those key gaps.”

• What’s the next frontier in private equity value creation? Paul Zuber, Operating Partner at Thoma Bravo: “Historically, if you go back a few years, everything was focused on costs. You reduce costs and you can get more profitable and that’s the value creation. I think what’s really shifted is that cost isn’t really enough. You have to get growth and you have to be more productive, so process change, leadership change, organizational talent, and technology has really been increasingly geared to that.”