Making savvy investment decisions is no longer enough. Successful financial sponsors must have a clear game plan for helping to achieve the full potential of their portfolio companies throughout the entire holding period of these assets.
Creating value at a portfolio company requires some of the same techniques for continuous improvement that one would find at any company. But there is one significant difference. The nature of private equity investment poses a dual challenge: delivering nearly certain results rapidly.
MEETING THE DUAL CHALLENGE OF NEARLY CERTAIN—AND SPEEDY—RESULTS
Relentless Focus. Focus on the handful of value drivers for which improvements are most likely to unlock significant value, and make sure the company is equipped to deliver in those areas.
Cost Position Improvement, Followed by Revenue Growth. The best value creation plan will have a healthy combination of short-term cost initiatives and longer-term growth initiatives, all carefully sequenced with a plan for getting from here to there. Delivering significant cost improvement in the first 12-18 months is essential to fund the evolution—and, sometimes, the transformation—of the business.
No-Compromises Alignment. It’s critical for shareholders and portfolio company management to be fully aligned on what needs to be done and when. And when it comes to management’s capabilities, accept no compromises.
100-Day Plan. What needs to happen in the first 100 days of ownership should be based on what is required over the next five years. Think through that plan carefully in collaboration with management, including close consideration of what needs to be delivered when.
Monitor and Adjust. Improvement initiatives must be carefully monitored to make sure they remain on track. Implement a good performance management system with carefully defined KPIs to track results and manage risks.
BCG will bring to bear the best of our industry and functional capabilities to create lasting value in your portfolio investments.
Measuring the results
Cost savings initiatives focused on lean operations, organizational overhead, and delayering can generate savings of 10-30%, and sometimes more.
Pricing analysis and optimization exercises can yield EBITDA improvements of 2-4 percentage points.
Sales-force effectiveness initiatives can produce EBITDA improvements of 1-2 percentage points and create incremental sales growth of 5-10%.