Canadians have a reputation for playing it safe. Myth or not, it is true the traditional strategy for private equity (PE) funds has been to buy healthy, well-managed assets and focus primarily on engineering value from volume growth. No management shake-ups, no operational assessments, and very little intervention until the market indicates it is time to make a sale.
It is a comfortable approach, to be sure. Yet as deals become more competitive and valuations more costly, progressive funds are taking a more 'hands-on' approach to creating value within their portfolios – much to the benefit of their stakeholders.
It is a smarter strategy for a new economic era. With the 'boom' cycle in full swing and PE funds flush with cash, we have entered an age of multi-billion mega deals where more players are chasing fewer good assets. By overlooking value creation activities, funds not only risk passing up strong opportunities but securing better deals down the road.
Certainly, the smart buyers of today are the ones taking tangible steps to drive value for tomorrow. They are wielding data and analytics and operational assessments to get clarity on business upsides, while taking a microscope to everything from procurement (direct and indirect) to IT spend, back-office cost reductions to off-shoring, make versus buy decisions, and the elimination of waste at all levels. They are tabling topics such as footprint optimization and business unit synergies, building 100-day operational improvement plans, and readying step-change programs to deploy the moment they take over their new acquisitions.
These moves are not always for the faint of heart, and some can prove more effective than others but doing it well could yield significant rewards for management and stakeholders alike. Ahead, we have broken down five themes that all link back to one question: is value creation in PE portfolio assets a myth or reality? Unsurprisingly, the answer to this question is somewhere in the middle. While we see evidence of some PE funds pressing ahead with leading practice and truly creating portfolio value, there are many that lag and pay lip-service, at best, to the theme of portfolio value creation.
Therefore, it is worth taking a closer look at which strategies are grounded in reality and which are more fiction than fact.
And when you are ready,
Let's do this.