Skip to Content

Three post-acquisition private equity value creation strategies

March 8, 2021 Article 2 min read
Ted Morgan
Three ways private equity firms can ensure value creation starting on day one.

staff presenting info to team using technological mediaThis is one of seven private equity value creation strategies we have compiled into our new guidebook. Download the entire guidebook here.

Value creation is the point of every deal. Here are three ways private equity firms can make sure they begin creating value starting day one.

1. Understand the industry

Most private equity firms develop a solid business case for their acquisitions, which often includes performing in-depth industry analysis. Yet, all too often the industry analysis is relegated to a filing cabinet once the deal closes.

It’s important that firms understand the acquisition in the context of the industry in order to determine where they’re best positioned to compete. This will drive value-creation decisions ranging from where to locate operations, to which businesses to close or sell, to whether the right products are being sold.

It’s important that firms understand the acquisition in the context of the industry in order to determine where they’re best positioned to compete.

For example: One private equity-owned company focused on its core products for the first two years post-acquisition; however, as the industry shifted to a heavier reliance on tech-enabled product solutions, the company was able to grow by expanding its capabilities to meet these new needs.

2. Realize the synergies across the portfolio

While private equity firms that own multiple companies are aware of potential synergies across the portfolio, many go unrealized due to competing priorities. Applying greater attention to these areas can reveal some surprising discoveries. For example, it’s possible that functional experts (either third parties or those residents in other portfolio companies) may have already solved some of the same issues the new company is currently facing, or they may have discovered opportunities for synergies.

In a recent instance, a private equity firm owned several similar manufacturers, all of which were buying comparable components from more than 40 suppliers. The firm undertook a purchasing consolidation effort and was able to reduce the number of suppliers to six, resulting in cost savings and greater supply chain efficiency.

What to consider when designing your post-acquisition plan:

  • Goals - Are the portfolio company and private equity firm management teams aligned on the goals to be achieved by the company?
  • Core capabilities - What core capabilities and resources will be essential for strong financial returns?
  • Growth drivers - What are the different drivers of growth for the company? Are there new opportunities within existing industry segments? Are there new products or services that should be pursued?
  • Operational improvements and efficiencies - Are there opportunities to improve business processes or to gain economies-of-scale through optimized supply chains?
  • Role of IT - What role does IT have within the company to drive operations? How will this change during the hold period?"

3. Don’t wait

Newly acquired portfolio companies often work under the guise of "business as usual" for the first 100 days rather than implementing changes right away. That could be a mistake. Making immediate changes to poor business processes identified during due diligence can allow for the management team and private equity firm to work together to achieve "quick wins," which can help advance relationships and morale within the company.

Related Thinking

Building stair with sunrise
March 1, 2021

Using performance-based equity incentives to achieve private equity value creation

Article 1 min read
Business partners overlooking a blurred cityscape
March 5, 2021

Upgrade the finance function to assure private equity value creation

Article 3 min read
Building stair with sunrise
February 22, 2021

Prevent private equity value erosion with proper tax planning

Article 3 min read
Wheat field in sunset
March 2, 2021

Address accounting on day one for post-acquisition value creation

Article 2 min read
Two professional men shaking hands
March 8, 2021

Three operational improvement tactics to accelerate private equity value creation

Article 2 min read
diverse group of people working on a project
March 5, 2021

Aligning technology for post-close value creation

Article 3 min read