PRIVATE EQUITY’S SPRINT TO

VALUE CREATION
14 strategies to move
faster toward boosted
profits and returns
 TABLE OF CONTENTS

SPRINT TO VALUE CREATION ..................................... 3 FINANCE & ACCOUNTING.................................19

– WELCOME
09 Build a high-performance team
to professionalize and transform
the function
SOURCING & PROCUREMENT..................................... 4
01 Optimize relationships for
sustained savings CULTURE AND DEIB.............................................21

SUPPLY CHAIN................................................................... 6
10 Create an inclusive, equitable
foundation for all to thrive
02 Build resilience against
shifting conditions CUSTOMER PREFERENCES.............................. 23

ANALYTICS............................................................................ 8
11 Define who they are and how
best to serve them
03 Mine data for
decision-making gold PRICING STRATEGIES........................................ 25

CASH MANAGEMENT......................................................10
12 Move beyond one-size-fits-all:
Match prices to true value
04 Boost visibility to
identify efficiencies SALES FUNCTION OPTIMIZATION................. 26

TECHNOLOGY SOLUTIONS............................................11
13 Get a handle on client concentration
for greatest impact
05 Add muscle for mission-critical
capabilities ESG............................................................................. 28

M&A STRATEGY................................................................ 13
14 Align stakeholder priorities to
create value and do good
06 Accelerate growth with strategic,
smooth integrations
CONCLUSION..........................................................31
MANAGEMENT AUGMENTATION................................ 15
07 Fill in extra skills and expertise
to support lift-off
MEET OUR TEAM ................................................. 32

OUTSOURCED OPERATING PARTNERS .................17

08 & OUTSIDE ADVISORS
Expand industry and situational
know-how

PRIVATE EQUITY’S SPRINT TO VALUE CREATION

SPRINT TO The private equity ownership horizon is short, and the goal is clear: Create value for

VALUE CREATION
the firm, the portfolio company, and investors. Finding the fastest and most reliable
route to value creation is key.

WELCOME While a value creation plan should always consider the entire lifecycle of an
investment, we’ve found that the best results can often be obtained by focusing
on the distinct parts of that greater whole: Implementing a series of value creation
“sprints” that result in more immediate top-line, bottom-line, and operational
impacts. Sprinting to value creation offers a practical, results-oriented approach to
improving portfolio company performance.

This guide contains insights shared by experienced, accomplished professionals

from across our private equity value creation team, representing the various facets
of our approach to accelerating growth. We hope they are a valuable resource
for identifying and acting on the most important elements of the value
creation process.

Feel free to reach out to us for more details, or for help getting started. Whether
pre-transaction, mid-transaction, immediately post-close, or at any other point in
the investment lifecycle, we’re ready to offer guidance and assistance in building
first-class value creation plans and implementing the strategies needed to succeed.

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 3

CHAPTER 1: SOURCING & PROCUREMENT

OPTIMIZE RELATIONSHIPS FOR SUSTAINED SAVINGS

Sourcing and procurement practices have evolved
significantly over the past decade to such a degree
that many consider them to be a major driver of
EBITDA. For private equity firms, enhancing sourcing
and procurement practices has opened up a new
opportunity for value creation that has the potential
to span an entire portfolio, and to produce large
savings throughout the lifecycle of an investment.
Because procurement spend represents a significant
percentage of revenue for middle-market companies,
improving the efficiency of procurement practices
can exponentially enhance EBITDA growth while
solidifying supply chain operations. A dollar of
procurement savings often represents as much as
three to four times the financial impact of a dollar of
incremental revenue.
Sourcing and procurement should be put at
Especially in times of heightened inflation, supply
the very center of a value creation plan, even
chain disruptions, and the uncertainty brought on by
climate change, sourcing and procurement should before a term sheet is in place.
be put at the very center of a value creation plan,
even before a term sheet is in place. Optimization Key vendor agreements, especially long-term
should begin during the due diligence process with an ones, can reveal a great deal about how a company
initial examination of operational spend data. With conducts its business. The following can be signs that
many middle-market target companies lacking the management may be purchasing goods or services at
proper analytic tools to measure the impact of their sub-optimal pricing – and thus indicate opportunities
procurement decisions, this may require a deeper for PE firms to implement value-creating changes with
dive into specific agreements with major suppliers, long-term impacts, such as renegotiating terms and
with a distinct focus on the length of key agreements pricing or even switching vendors altogether.
and the number of suppliers engaged in a specific area
•M
 ajor vendor relationships that have not been
of spend, as well as the overall financial health of
competed in the prior 12-24 months
the suppliers.
•E
 vergreen agreements with no explicit expiration
date or option to terminate
•P
 ricing structures that contemplate automatic
annual price increases
• L ack of contractual provisions tied to specific
supplier performance metrics
• Non-arm’s-length supplier agreements

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 4

CHAPTER 1: SOURCING & PROCUREMENT (CONTINUED)

Some sophisticated PE firms have moved to hiring firm to maintain increased pricing power over the
specialists in procurement to conduct detailed suppliers and obtain key products and services at
diagnostic analysis and drive operational significant discounts relative to solely purchasing at
improvements in order to create a systematic the portfolio company level.
approach to EBITDA growth that can be deployed
across an entire portfolio. While these sourcing and procurement improvements
can rapidly yield significant benefits in the short
Including key suppliers in the value chain can also term, they are not the end of the job; it’s important
have positive benefits: PE can often accelerate the to maintain a consistent sense of urgency in this
implementation of a new process improvement, area throughout the lifecycle of the investment, and
such as optimized billing and invoicing, by working continuously re-evaluate. This will require defining
alongside both internal procurement leaders and key performance indicators – contract terms, spend
key suppliers. data, billing trends, competitive pricing, and other
points – and securing and deploying the analytical
An increasing number of PE firms have taken and tracking tools needed to monitor them. With
the approach of consolidating the sourcing and active and ongoing management oversight, savings
procurement of products and services common to can be sustained, and potentially even grown, all the
all portfolio companies, such as benefits and certain way through to the point of exit. 
insurance offerings, office products, cybersecurity,
transportation, and many others. The consolidation
and centralization of this purchasing allows each PE Back to Table of Contents | Contact Us

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 5

CHAPTER 2: SUPPLY CHAIN

BUILD RESILIENCE AGAINST SHIFTING CONDITIONS

Risk mitigation should be a central theme for private While closely linked with the procurement
equity firms at every point in the investment cycle. function’s goals around cost optimization,
While it’s no surprise that supply chain weaknesses
can be a main source of vulnerability, the resilience
supply chain efficiency is differentiated by
of the supply chain has taken on a new level of its focus on planning, distribution, logistics,
importance in the wake of widespread disruptions and operational efficiency.
caused by disease and conflict, and in the face of
Once confidence is established in the forecasts,
climate change. The result has been a strategic effort
companies should work from those baselines to plan
to aggressively build stability and efficiency into a
for a range of acceptable performance, so that they
portfolio company’s supply chain as part of the value
are prepared for any fluctuations in market conditions
creation plan.
– especially important in today’s unpredictable
While closely linked with the procurement function’s environment. Whether delivering goods or services
goals around cost optimization, supply chain as their product, it’s a unique and ever-changing
efficiency is differentiated by its focus on planning, balancing act to determine what investment in
distribution, logistics, and operational efficiency. product inputs is sufficient to satisfy projected
Operations managers dedicated to supply chain demand, and also not too much. This step is key to
resilience concern themselves with mitigating risk the ultimate goal of building resilience in a company’s
related not only to inventory, but also to the physical supply chain.
movement of goods.
Within the bigger picture, PE firms should strive to
Supply chain optimization begins with improvements analyze and strengthen each distinct aspect of the
to overall forecast accuracy. This is the Achilles heel supply chain. Closely examining each link, creating or
for most companies. World-class forecast accuracy revising business continuity plans for all key inputs,
can reach about 80%, but the benchmark is typically and working to alleviate potential disruption can
a 50-60% accuracy rate. Improving forecast accuracy produce significant EBIDTA growth and value creation
can automatically smooth out an entire supply chain upon exit. For example, consider:
and avoid a bullwhip effect, where a minor change at
•W
 arehouse locations. A portfolio company that
one end of the process becomes exponentially larger
manufactures and ships goods across the U.S.
by the time the impact is felt at the opposite end of
from a single warehouse in Los Angeles should
the chain. It can take at least two to three quarters
raise multiple red flags in today’s environment.
to recognize any meaningful impact of a change to
If there is a problem in the local market, how do
supply chain processes.
you continue providing a predictable supply of
raw materials to that one factory? If that supply
is disrupted, how do you still deliver finished
product to the customer, on time? In this example,
adding more facilities in strategic locations can
boost supply chain continuity.

•R
 educing distribution and shortening
freight distances. A portfolio company with
65 distribution centers, on the other hand, may
function more efficiently with just 10, depending
on the strategic locations of the facilities.
Consolidating a company’s distribution footprint

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 6

CHAPTER 2: SUPPLY CHAIN (CONTINUED)

has the potential to reduce both cost and risk •V

 endor managed inventory (VMI). With the
simultaneously, with fewer touches to the uncertainty of today’s supply chain, more
product, plus better utilization of warehouse companies are needing to hedge risk through
space and key freight assets. added inventory investment, reversing prior
benchmarks aimed at “just in time” (JIT). Working
–A
 freight utilization analysis may also be with key strategic suppliers to produce and hold
helpful as part of this process, for businesses stock on the company’s behalf, only billing as
with relevant freight usage. The ability to items are actually consumed, can help address
consolidate Less-Than-Truckload (LTL) moves the need for added inventory coverage while also
to maximize Full Truckload (FTL) shipments bringing working capital improvements to the
can erase cost, complexity, and risk from balance sheet.
the supply chain. Additionally, there may be
opportunities to team up with suppliers to In many instances, especially for any kind of
move freight on their contracts where they manufacturing or distribution business, supply
possess additional leverage in certain markets chain challenges can often be exposed during the
or shipping lanes. due diligence process, but portfolio companies in
technology or other service sectors may require
• Supply chain redundancy. As many companies a deeper look to avoid a supply chain issue going
experienced during the pandemic, supply chain unnoticed until later in the investment lifecycle.
disruptions can have a severe negative impact
on business operations. In the same way that Finally, coordinating a portfolio company’s supply
companies must develop business continuity base footprint with its production and distribution
plans for other areas of their business, they footprint can unlock substantial value through Total
must do so for their supply chain. Companies Cost of Ownership (TCO) analysis, taking into account
should have purchasing contracts in place with factors such as supplier lead-times and Order-To-
secondary suppliers that have the capacity to Delivery (OTD) timing tied to the various network
ramp up should the primary supplier suffer a design alternatives available. Looking for alternative
disruption. The selection of the right base of sources of supply or localizing manufacturing and
suppliers is almost as critical as the pricing from distribution to shorten shipping times are among the
those suppliers. many avenues PE firms can take to optimize supply
chains and create long-term value. 

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PRIVATE EQUITY’S SPRINT TO VALUE CREATION 7

CHAPTER 3: ANALYTICS

MINE DATA FOR DECISION-MAKING GOLD

Across the business landscape, in all corporate For various reasons, there has been a reluctance
functions, state-of-the-art analytics have changed the across the private equity industry to stand at the
state of play. The time where private equity firms could forefront of digital transformation. Fortunately, many
succeed with limited data collection and analytical of these reasons are easy enough to mitigate.
insight about the operations of their portfolio
companies has long passed. •H
 urdle: Significant upfront costs and a rapidly
changing technology lifecycle make the
The impact and importance of analytics on the journey investment and deployment of large-scale
to value creation cannot be understated. Analytics analytics a challenge.
offer the competitive tool to help PE firms make smart •S
 olution: Engage external data engineers,
decisions and add value at every stage of a portfolio information architects, and systems integration
company lifecycle. Firms are sitting on a treasure trove specialists to complement and augment internal
of potential value creation in the form of gold mines of teams in a build-operate-transfer cycle.
data across their portfolio companies’ value chains.
•H
 urdle: These investments may be less appealing
•E
 arly stage: Analytics help build cases for smart because there may not be an immediately
decisions based on data, not feelings. With bad quantifiable return or result.
data – or worse, a lack of data – a firm may invest •S
 olution: Use an agile, iterative approach, and
in the wrong things, and never achieve their value recognize immediate benefits from implementing
creation goals. Data-driven decision-making tools these solutions in the form of better decision-
help reduce risk and complexity. making in various aspects of company
optimization and operations based on
•T
 hroughout: PE firms and their portfolio specific hypotheses.
companies face a variety of key operating and
reporting requirements: to investors, regulators, •H
 urdle: One of the most challenging, often-
other stakeholders. Audited financial statements overlooked hurdles is largely cultural: Working
may be required. Analytics keep the data with portfolio company leaders to create
necessary to fulfill these obligations right at their a business ethos built around data. Senior
fingertips. leaders and entrepreneurs may have operated
successfully for decades without tracking and
•L
 ate stage: If measured and tracked correctly managing data as part of their day-to-day
throughout the hold period, key performance operations, relying instead on instinct and gut
analytics and demonstrated ability of portfolio decision-making. Embedded management
companies to transform insights into action can resistant to change mandated by new leadership
help create an attractive narrative theme for a can cause lengthy delays in the value
potential buyer. creation process.
•S
 olution: Begin the process of becoming a
Analytics offer the competitive tool to data-driven organization as early as possible
help PE firms make smart decisions and by including stakeholders from all levels of
add value at every stage of a portfolio the organization in the process for identifying,
building, and celebrating analytic wins.
company lifecycle.
During the due diligence process, assess the
management team’s willingness to adopt a data-
driven culture, and use early discussions to lay
the groundwork for doing so.

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 8

CHAPTER 3: ANALYTICS (CONTINUED)

Once alignment in perspective has been achieved, 4. Embed analytics-driven decision-making into
setting baseline values and target benchmarks is all aspects of process with management and
essential for managing the value creation plan. Making line employees.
measurable actions, investments, and experiments in
analytics encourages directional value. •E
 mpower decision-making based on the insights
at the lowest levels to realize and obtain the real
Cracking the code to embedding analytics value of embedding data and analytics into
and reshaping the business the organization.
Start with these four steps to building or boosting Analytics has a deep, central role to play in every
analytic capabilities for a portfolio company. part of value creation, whether in optimizing
inventories or supply chain planning; establishing
1. Align on a strategy tied to specific income
how to measure and monitor sustainability efforts;
statement or balance sheet actions.
determining the right prices to set, customers to
•B
 uild a focus on hypothesis generation that distribute offers to, and stores to invest in; or any
comes from the strategic decisions the business number of other initiatives. It is the foundational but
needs to make both every day and on most overlooked and under-deployed mechanism
key actions. that has the opportunity to have the most lasting,
pervasive, and deep impact on a firm’s effort
•E
 mbed all levels of the business into the analytic to identify and create value, for better financial
building and enablement process. outcomes. PE firms shouldn’t delay in evaluating
how to give analytics a more prominent role in
2. Build the right foundations of data, people,
their toolbox. 
and technologies.

•B
 ring the cross-functional, integrated talent Back to Table of Contents | Contact Us
required together to put analytics into action.

•U
 se an established adoption method for analytic
introduction, including building and bringing
a single source of truth and trust to a portfolio
company’s data.

•B
 uild a strong, transparent governance and
management function from the start, so that
stakeholders can trust the insights generated
across the organization.

3. Focus the foundations on the highest-impact

problems to solve for both business outcomes and
adoption enablement.

•C
 reate a “flywheel” of both easy and challenging
problems to solve for, and introduce both
descriptive analysis and elements of advanced,
predictive analysis to the organization.

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 9

CHAPTER 4: CASH MANAGEMENT

BOOST VISIBILITY TO IDENTIFY EFFICIENCIES

It’s easy to dismiss the function of cash management Start here
as overly technical and unexciting. But working capital
No matter the situation, there are three top steps PE
is the engine for the growth of a business, and taking
firms can take to improve cash management efficiency
deliberate steps to tighten cash management and
and rapidly create value:
increase the transparency of the cash conversion cycle
can reveal numerous opportunities for value creation. 1. Look closely at receivables and, if possible,
discuss where things stand directly with the sales
The due diligence process is likely to reveal
team. Asking for data and probing for historical
shortcomings in a target’s cash management
analytics about the size of the sales funnel can
procedures, practices, staffing, and systems, with
reveal tremendous opportunities to secure working
additional intelligence bubbling up during the first few
capital. Looking further up the sales funnel to
months of ownership.
explore the quality of the customer may reveal
Getting ahead of cash management challenges important trends that go beyond quantitative sales.
Know this: When assessing the health of a company, 2. Review the current payables and the existing
working capital is a key indicator. systems being used to pay vendors. Does the
company have a set policy or a programmatic
Gain transparency around the cash conversion cycle.
approach? Could a new system yield results
Probing the portfolio company’s management team
in a timelier fashion? For small and mid-sized
about how they have managed cash to date may
businesses, it is unusual to find automated
reveal gaps that need attention to reduce cash leaks
tools and controls coupled with a sophisticated
– or worse, the unpleasant task of injecting additional
purchasing order system for invoices, so
funds into a company after closing just to keep
implementing those solutions may be a clear early
it afloat.
improvement for PE buyers to execute. Another may
Elevate working capital as a key value driver across be the consolidation of vendors and developing
the business. It is typical for private equity investors consistent terms. Many smaller businesses don’t
and portfolio companies to focus on increasing have the leverage to enforce their own payment
revenue and optimizing costs. Managing working terms, but can leverage the power of the sponsor.
capital rarely receives the attention it deserves until
3. Analyze inventory days and calculate the number
there’s a shortage of cash. Instead, creating a standard
of days of inventory on hand. With the rise of global
cash management template, and making cash
supply chain disruptions over the past few years,
management a priority across the company, may yield
many businesses have moved from a “just in time”
favorable results. Additionally, focus on upstream
approach to managing inventory to a “just in case”
processes to improve working capital in the shortest
mindset. This shift is expected to dominate business
time. Examine the quality of sales and the reliability
for the foreseeable future and could open up new
of vendors and suppliers to maximize throughput
pathways to value creation in the years to come.
resulting in steady spending levels.
Portfolio companies with improved working capital
Consider utilizing a standard cash management
ratios and other performance metrics in line with
template for all current portfolio companies and
industry benchmarks will be better positioned for
new acquisitions. Even for those with a thorough,
healthy growth. 
adaptable blueprint, the task of working with the
CFO and senior leadership to adapt new formats or
schedules for reporting is many times easier said
than done. Back to Table of Contents | Contact Us

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 10

CHAPTER 5: TECHNOLOGY SOLUTIONS

ADD MUSCLE FOR MISSION-CRITICAL CAPABILITIES

For private equity firms racing to create value in their Before any technological investments are put into
investments, the introduction of a new technology motion, the first step is to establish what capabilities
solution can serve as an accelerator of growth. When are being sought, or how the technology will
properly implemented and managed, technology help drive value in the portfolio company. Is the
systems and solutions can add significant value to a goal to increase customer willingness to pay (e.g.,
portfolio company during the time it is held, and again personalization), or lower company cost to serve
at the point of exit, as technology systems are playing (e.g., greater efficiency)? If the goal is to increase
an increasingly large part in exit valuations. the top line, target capabilities and their supporting
technology investments may include:
While the benefits of utilizing leading technology
may seem obvious – better management, sales,
Capability Technology investment
and financial controls – the costs of not doing so
will appear as the company grows. The underlying New products Tools for research and
development (R&D)
operating model capabilities and technology systems
are typically evaluated during the diligence process, Enhancements to margin Data and analytics tools to
likely following examination of a company’s financial better understand thresholds
health and management expertise. Sales team enablement CRMs and marketing
automation
Making the decision to upgrade or change key
operational systems should be carefully considered This need to hone in on the purpose of a change is
and conducted with an unflinching focus on what true of any area of value creation, but it’s particularly
drives value for the company. important for technology because of the tendency
to go for widgets – easy, seemingly handy tools
How to improve – Business goals first,
that are less aligned with the firm’s goals. Without
technology second
a true business case for how an improvement will
Technology is foremost a central part of the provide necessary value, companies may end up just
organization’s operating model, representing a key implementing technology for technology’s sake, or to
enabler and muscle for mission-critical capabilities. try to keep up with other businesses. There should be
a clear, integrated, top-down roadmap for all changes,
with leadership driving the vision.

Because some target companies may be less

developed when it comes to the key capabilities
needed to spur growth, identifying and upgrading
processes and applications can provide a relatively
fast way of creating value. Common improvements
may include stronger CRM (customer relationship
management) or ERP (enterprise resource planning)
systems; new customer portals or commerce
capabilities; sensor/IoT networks; marketing
automation and intelligence solutions; and the
deployment of a modern insights platform composed

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 11

CHAPTER 5: TECHNOLOGY SOLUTIONS (CONTINUED)

of a data repository (or “lake”), integration layer, Significant technology shifts should
and reporting capabilities. As organizations become typically be made in the first two years of
more technologically mature, automation through
bots and robotic process automation (RPA) are other
ownership; after three or five years, it is
capabilities to activate in support of growth and likely too late in the value creation cycle for
competitive advantage. any technology to make a significant impact
With so many possibilities, PE firms may wonder
on EBITDA.
where to start. While it may seem obvious, speaking
directly with business function leaders and other technology to make a significant impact on EBITDA.
team members about their needs is a critical first
Keep in mind, too, that talent is an important factor
step in this process, one that is often overlooked by
in the success of new technology and capabilities.
PE deal teams who may instead focus only on dealing
Preparations to launch an improvement should
exclusively with senior management. Similarly,
include putting the right team in place to support
speaking with a representative group of stakeholders
it. Look for seasoned people who know the nuances
about the capabilities that serve them best can
of the business and how the technology should
potentially help streamline and simplify purchasing
be tailored to best meet its needs; then, once
and other processes.
any customizations are ready, make sure there
are sufficient people to stand up and maintain
When to improve
the new systems. And as early as possible, make
Investing in technology can be a challenge for any sure that the organization is ready to accept the
business, no matter their level or technical maturity technology and the associated process changes.
or the stage in the investment lifecycle. For a PE Clear communication of the technology’s benefits
firm, the decision-making calculus is especially for both the overall organization and for employees
complex, demanding a detailed analysis of both themselves may be helpful in that regard.
the importance of the system(s) and its potential
impact on the performance of the business, as well The deployment of technology solutions plays a
as the overall value of the portfolio company upon critical role at every stage of the sprint to value,
exit. A central question revolves around timing the from back-office optimization to growth initiatives.
investment(s) and deployment of technology- Strategic and timely investment in technology can
related initiatives. make or break the valuation of a portfolio company.
Assessing the company’s capability needs, developing
From an internal perspective, calculating the return on a plan to meet them, and executing against that plan
investment for any technology outlay must be balanced to achieve the desired goals is critical in a
against the holding period for the company. Significant competitive market. 
technology shifts should typically be made in the
first two years of ownership; after three or five years,
it is likely too late in the value creation cycle for any Back to Table of Contents | Contact Us

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 12

CHAPTER 6: M&A STRATEGY

ACCELERATE GROWTH WITH STRATEGIC, SMOOTH INTEGRATIONS

Sometimes, optimizing organic growth within a Targeted acquisitions
business isn’t enough. Strategic deployment of an
A focused pipeline of acquisition targets is essential
M&A strategy to accelerate growth has been proven
when using M&A as a value creation strategy. Consider
to speed value creation for stakeholders, and can
these suggestions to build a healthy pipeline of
successfully be used as the cornerstone of a PE firm’s
potential acquisitions:
investment thesis. There is little doubt that value
creation plans focused around a “buy and build” •A
 ssign someone at the portfolio company to work
strategy create the fastest route to growing a platform. in tandem with the PE deal team to lead corporate
These strategies typically work best: development activities.

• I n highly fragmented industries where the •C

 reate a profile for prospective acquisitions,
acquisition of a new company can quickly add including size, industry, product/service offering,
geographic reach and an expanded roster of and geography, and communicate the strategy
customers with minimal disruption. across the organization.

•W
 ith founder-owned businesses that can •C
 ommunicate your interest in add-ons to vendors
be purchased at reasonable multiples. and current service providers.

As always, quicker doesn’t necessarily mean easier. •E

 ngage directly with industry-specific
Employing a “buy and build” approach demands professional associations.
that both PE investors and the management teams
at portfolio companies maintain a dual focus on not •D
 evelop industry-specific relationships with
only advancing their own core business objectives, but investment bankers, independent sponsors, and
also completing acquisitions and integrating people, venture capital firms.
systems, and cultures across multiple businesses. In more unstable market conditions, M&A activity
Without a well-oiled and experienced operational may be impacted by changes in the targets’ revenue
team, value and opportunity may be left on the table. streams, margins, and customer retention and
engagement. Additionally, potential fluctuations
in current and near-term market conditions may
cause both buyers and sellers to approach pricing
and valuation differently. Both items could cause
headwinds to a successful M&A strategy. The benefits
of action in an unstable environment should always be
balanced against the risks.

Integration planning
One of the most commonly overlooked challenges
with a “buy and build” strategy is failure to plan
for integration early enough in the process. Proper
integration planning should be included in the
diligence process to fully understand how the plan
will be executed. This should include everything
from finance, technology, and HR to real estate

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 13

CHAPTER 6: M&A STRATEGY (CONTINUED)

and accounting. In some instances where a firm is Be sure to consider:

acquiring tangential businesses, it may make sense
for the PE firm to acquire the company and operate • I nternal communication to employees to
it separately for a short time to identify potential clarify the path forward. Bringing people into
pain points; still, the parameters of that “trial period” the loop is crucial in gaining their support for
should be laid out in advance (e.g., how long it will a transaction, and waiting too long can build
last and what will be assessed, by whom). mistrust and lead to unanticipated departures
of key staff. At the least, employees should
It is essential to identify the roles and responsibilities be told before a deal hits the news or gets
of key executives and know who will actually manage announced publicly.
the integration workstreams. Far too often, a deal
team will complete a transaction and assume  nsuring that customers understand how they
•E
that every other aspect of the combination will will benefit from a transaction. Firms that do
be managed following the hand-off after closing. this well will time any announcement so that
Underestimating integration planning can cost a customers are finding out as the deal is closing,
management team weeks or even months to resolve, but before it is publicly announced. A poorly
simply because issues were not addressed in a timed communication strategy opens the door
timely fashion. for gossip and rumor, which may derail key
customer relationships. (Employees should also
Communication be filled in on how and when customers will be
informed about the change, particularly if the
The communication piece of a transaction can
process involves rolling up multiple businesses
easily get overlooked by executives focused on the
at once.)
financials of the transaction. Or, because add-ons
tend to involve smaller, owner-operator businesses, •S
 uppliers may have questions and doubts about
sophisticated communication may have never been a how a merger or acquisition will impact their
core component of their operation. But given the fast own business.
pace of an M&A transaction within a PE environment,
the importance of communication cannot
be overstated. M&A is a core competency of most successful private
equity firms. A “buy and build” strategy is likely to
deliver value faster than an organic growth strategy.
Private equity firms that scale up their talent, focus
on pipeline management, and implement seamless
integration plans will be in the best position to
achieve their value creation goals in the shortest
time possible. 

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PRIVATE EQUITY’S SPRINT TO VALUE CREATION 14

CHAPTER 7: MANAGEMENT AUGMENTATION

FILL IN EXTRA SKILLS AND EXPERTISE TO SUPPORT LIFT-OFF

Business owners joining up with a private equity firm If handled correctly, the ROI when bringing
do so with the understanding that their organization in outside assistance can be substantial.
will probably go through changes on the path to
(hopefully) becoming more valuable. One of the first
Some may be able to find and create value
things a PE investor should assess when acquiring within an organization that may not have
a company is the talent of the current management existed before.
team. Quite honestly, most private equity investors
are attracted to acquisition targets with proven Some of these deficiencies can be improved as the
management teams. But do they have the insight and private equity parent professionalizes the business,
experience needed to make good on the investment but others may require changes.
thesis? The leadership skills to actualize the value
creation plan? Are there any gaps? If so, a good More than anyone else, the CFO and their work
solution may be hiring interim members for the should come under direct significant scrutiny, as
executive team to augment current management they can give PE investors deep insight into the
during initial lift-off. performance and structure of the company’s finance
department. As a result, the office of the CFO may
How to determine whether (and where) quickly become a candidate for transformation.
management augmentation is needed
Finally, it is not unusual for a member of the executive
Unless critical to the business, most private equity team to leave voluntarily following (or even leading
investors will wait to replace a member of a up to) a transaction. As details of the value creation
company’s leadership team, unless precipitated by a plan unfold, they may come to realize that they
specific event or infraction. Most would rather retain simply may not possess the capabilities to drive the
and develop the current management team. Entering business forward.
into an investment with the intention of immediately
conducting drastic changes is likely to create
disruption, result in a high degree of skepticism and
distrust among both the impacted executive team
and the broader workforce, and possibly even signal
a lack of respect for the company itself.

Still, before and during diligence, PE investors may

notice signs that a member of a company’s leadership
team may be unsuited for a role in the future of the
company. Typical red flags can include:

•R
 equested information is slow to come,
and/or incomplete

•A
 history of poor reporting

• F inancial information does not correspond

with inventory or sales data

• I nability to communicate clearly

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 15

CHAPTER 7: MANAGEMENT AUGMENTATION (CONTINUED)

Why employ management augmentation? Get the most from interim management
Augmenting management during the early stage of All this said, just bringing in interim leaders is not
the investment lifecycle can be a prudent solution enough to give lift-off to the value creation plan. The
that produces a significant return on investment. right approach to hiring and working with them is
Interim executive management can: critical. Consider these must-do’s:

•P
 rovide access to industry professionals •S
 et clear goals, objectives, and scope of work for
with functional expertise without each interim executive.
long-term commitment
•D
 evelop a communication process that includes
•H
 elp the current management team support the current management team, interim
integration activities while managing executives, and the private equity parent.
the business
• I dentify specific KPIs to measure the impact of
• F ill gaps left by any departing leadership while a each interim executive.
search is conducted for a long-term replacement
•A
 ssess the going-forward needs of the business
•A
 ct as a communications ambassador for the when the interim executive transitions out.
private equity parent
•C
 reate a hiring process in the event a permanent
•B
 uild trust with the current management team solution is required.
and employees
Failure to communicate properly with new team
• F ocus on the implementation of a specific set members of the portfolio company about retaining
of objectives consultants is one of the most frequently cited
reasons for transaction failure. Often, consultants
•B
 uild a strong foundation for good decision- are retained and brought in without the proper
making and action internal communications or directions, creating an
uncomfortable situation that can quickly lead to
employee disengagement.

However, if handled correctly, the ROI when bringing

in outside assistance can be substantial. Some
may be able to find and create value within an
organization that may not have existed before. The
best consultants will track their own performance
in financial terms and be able to demonstrate that
the changes they identified and implemented had a
specific impact on the income statement.

The process of augmenting management should

be undertaken with care and appreciation for its
impact on the larger organization. Identifying specific
areas to be addressed, along with a detailed
plan for implementing change, is crucial to
long-term success. 

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PRIVATE EQUITY’S SPRINT TO VALUE CREATION 16

CHAPTER 8: OUTSOURCED OPERATING PARTNERS
AND OUTSIDE ADVISORS
EXPAND INDUSTRY AND SITUATIONAL KNOW-HOW
In a race to create value, one of the most effective With the value creation clock ticking,
tools a PE firm can have is a team of business outsourced operating partners add both
specialists who can assist in the due diligence
process, craft a post-closing plan, and hit the ground
talent and industry-specific knowledge
running immediately after a transaction has closed. that can be effectively transferred to a
Similar to the pit crews of Formula One racers, portfolio company’s current management
these specialized operating partners can quickly team for long-term success.
assess areas of concern, formulate a strategy,
and implement necessary changes without
Optimize your outsourced operating partners
significant oversight.
Outsourced operating partners can help lift some of
Outside operating advisors are typically executives the work of moving a portfolio company forward from
with deep expertise in one or more specific the private equity firm’s shoulders – if the PE firm
areas, such as procurement, systems technology, creates for them the right structure in which to do so.
accounting, marketing, sales, or human capital. Some
have skills distinct to a particular industry, such as Utilizing outside advisors without proper oversight
biotechnology, aerospace, or agriculture. With the can pose a significant downside to a PE firm. In
value creation clock ticking, outsourced operating some instances, having a multitude of consultants
partners add both talent and industry-specific operating without proper management can create
knowledge that can be effectively transferred to a new issues and thus an undue burden for the firm
portfolio company’s current management team for and the portfolio company. To achieve a positive
long-term success. outcome, management must make sure that each
outside advisor has a clear plan and mission, as well
Beyond bringing instant expertise, outside advisors as a timetable for deliverables, prior to deployment.
can expand a management team’s bandwidth to
address issues that may have been on the back Consider these best practices.
burner, enabling the existing management team to
•O
 utside advisors are most successful when
remain focused on day-to-day operations. Where the
brought in early during the diligence process.
existing internal management team might need a full
Working with specialists to identify areas of need
year to solve an issue due to stretched bandwidth, an
prior to closing enables the advisor to build a
outside advisor solely dedicated to the problem may
rapport with the management team and create a
be able to correct it in a few months.
smoother working relationship post-acquisition.
PE firms with the resources to do so may benefit from Outside operating partners brought in during the
keeping these specialists at the ready and deploying diligence process can help address commercial
them as needed on site at portfolio companies over and operational business assumptions that may
and over again. Others can retain outside advisors not hold up post-acquisition.
who can fill the role of operating partner at varying
 ithout clear communication channels, PE
•W
points in the investment lifecycle.
firms that deploy outside advisors at their
portfolio companies run the risk of disrupting

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 17

CHAPTER 8: OUTSOURCED OPERATING PARTNERS AND OUTSIDE ADVISORS
(CONTINUED)

the normal course of business and slowing the Outsourced operating partners can help
value creation process. Because they typically lift some of the work of moving a portfolio
report to the deal team at the PE firm, outside
advisors often maintain no formal reporting
company forward from the private equity
relationship to portfolio company management, firm’s shoulders – if the PE firm creates the
which can sometimes create a challenging right structure in which to do so.
environment for executives accustomed to
having complete control of their operations. To
Bringing in outside operating partners can be an
alleviate this, look for seasoned outside advisors
expensive undertaking, but the ROI can be significant.
skilled at communicating with both sets of
PE firms that engage outside advisors throughout
management and quickly gaining the confidence
the value creation process tend to achieve an
of existing management teams. When all of
exponentially higher return than those who do not.
these groups work together properly, the advisor
is best positioned to present a solution-driven, (Do, though, make sure to have a system in place
action-oriented approach to addressing the for properly measuring ROI during the investment
most pressing needs of the company, which will lifecycle. Being able to capture a tangible return on
help put everyone at ease. the investment will help ensure that everyone at the
firm and company level understands the value that an
 o be successful, outside advisors must drive
•T
outside operational manager brings to the table – and
action, rather than simply develop plans and
build the trust needed for their recommendations
recommend strategies. An outside operating
to succeed.) 
partner will create the most value if they are put
in a position to drive implementation rather than
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PRIVATE EQUITY’S SPRINT TO VALUE CREATION 18

CHAPTER 9: FINANCE & ACCOUNTING

BUILD A HIGH-PERFORMANCE TEAM TO PROFESSIONALIZE

AND TRANSFORM THE FUNCTION
Finance sits at the core of every business and should As an organization takes on outside investors
be one of the first corporate functions to be assessed and finds itself facing additional reporting and
by a private equity investor. Examining a portfolio compliance requirements, the finance function
company’s financial picture includes an in-depth will need to respond quickly. However, some
review of the business’s existing finance structure, weaknesses may not be apparent until performance
processes, systems, teams, and leadership. While improvements are implemented in other areas, such
the existing finance and accounting functions at a as sales, logistics, or production. This is frequently
portfolio company may have worked exceptionally the case when a target company is part of a larger
well in the past, history is not an adequate predictor platform within a PE portfolio. In an effort to create
of future success. Under the new pressures of a time- synergies, the PE firm may not identify shortcomings
sensitive value creation plan, they may not be able to in the target company’s finance and accounting
deliver similar results. Founder-owner organizations, function until they are integrated.
in particular, often do not have defined finance Investing in a highly sophisticated finance and
and accounting processes and operate utilizing accounting function can help achieve a number of
spreadsheets. This is not conducive to scale important value creation goals, including:
or integration.
•S
 treamlining processes throughout
Because the finance and accounting function is a cost the organization.
center, many PE firms may be reluctant to make the
investment necessary to build a high-performance •D
 ecreasing inefficiencies and redundancies.
operation in the early stages of ownership. While this
•C
 reating financial modeling systems to support
approach may work in the short term, any business
decision-making.
on a fast track to growth and expansion will need a
sophisticated, state-of-the-art finance and accounting •R
 educing the cost of capital.
function. Indeed, investing in the necessary people,
tools, and technology is integral to the success of a •P
 roviding timely and accurate reporting to the
value creation plan. private equity parent.

Identifying what to improve • I dentifying and recommending incremental

A comprehensive diligence process will typically investments to increase revenue and
uncover weaknesses in finance and accounting. In optimize costs.
addition to the standard quality of earnings and tax •A
 utomating repeatable processes.
due diligence, PE firms should consider conducting
finance process due diligence, which looks at the •U
 tilizing forecasts and sensitivity analyses to
processes, infrastructure, and team under the CFO’s prioritize resources.
domain. A thorough understanding of key areas
•U
 pgrading technology systems, including
such as order to cash, procure to pay, treasury
enterprise resource planning (ERP) and general
operations, etc., will provide deeper insight into risks
ledger functions.
as well as opportunities for improvement within the
finance function. Appropriate due diligence should
expose top-level issues, such as financial reporting
failures, incomplete document management, poor
Any business on a fast track to growth and
staffing, or outdated technology, prior to the close expansion will need a sophisticated, state-
of a transaction. If it does, improvements can be of-the-art finance and accounting function.
incorporated into the broader value creation plan.
PRIVATE EQUITY’S SPRINT TO VALUE CREATION 19
CHAPTER 9: FINANCE & ACCOUNTING (CONTINUED)

Building the right team necessary to achieve the larger goals of the value
creation plan. Outside advisors can be tasked with
Any performance improvements to a business will
long-term planning and analysis, such as conducting
place additional strain and responsibility on finance
a comprehensive review of financial, accounting, and
and accounting. For this reason, the CFO is among
strategic planning systems. Making recommendations
the first executive members to be closely scrutinized.
for enhancements to key financial systems, such as
In many cases, the role of the legacy CFO is not scal-
ERP, is often best outsourced to consultants who can
able because they cannot grow or adapt to new ex-
offer deep insight without disrupting internal
pectations. Although they may have done an
staff operations.
exceptional job to date, the added reporting and
structural functions of a newly funded portfolio Because financial management sits right at the
company are likely to require a change in hub of a business, investing in a high-performance
financial leadership. finance and accounting function can have numerous
tangible benefits that extend far beyond process
In order to minimize disruption to existing business
improvements and streamlined operations. Chief
functions, some PE investors may elect to install
among these is enhancing a portfolio company’s exit
interim management to focus on the future state of
narrative, ultimately leading to a higher valuation. 
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PRIVATE EQUITY’S SPRINT TO VALUE CREATION 20

CHAPTER 10: CULTURE AND DEIB

CREATE AN INCLUSIVE, EQUITABLE FOUNDATION FOR ALL TO THRIVE

The success of a private equity firm’s value creation should keep their eyes wide open for potential
plan generally assumes that most performance challenges that might derail a deal or require
improvement goals within a portfolio company extra planning post-integration. It used to be that
can be realized within a three- to five-year time a keen observer could walk into a company and
horizon. Corporate culture and diversity, equity, watch how a receptionist deals with customers or
inclusion, and belonging, or DEIB, present a unique a manager interacts with a subordinate to get a
improvement challenge, as they tend to take longer clear understanding of the culture. Today, when so
to show measurable change. But there are ample much interaction is virtual, gaining a well-rounded
opportunities for PE companies to start or advance perspective can be difficult. In whatever setting
progress in these areas that can continue to create possible, things to watch for include:
benefits and value leading to an eventual exit. •H
 ow decisions are made – hierarchy vs.
Culture and DEIB have been attracting increased autonomy vs. collaboration, who needs to be
attention over the past several years as attitudes involved by name and position
within the labor market have shifted and stakeholder
focus has grown on environmental, social, and •H
 ow management influences decision-making,
governance factors (ESG; read more in Chapter and how tightly they control information
14). Especially amid the rise of remote work, what •H
 ow the organization communicates with
has been done in the past to create and maintain its employees and customers – the level of
corporate culture is no longer sufficient; businesses corporate transparency, how is feedback is
must find new frameworks for employee and managed, circular vs. one-way communication
customer engagement.
•W
 hat is valued in the company, vs. what is
Culture is the foundation upon which successful
practiced; who are the organizational heroes?
businesses build trust with their most important
constituencies, both internal and external. It often •A
 ny red flags in the types of clients/businesses
enhances and accelerates the success of a business, they serve or represent
impacting revenue, share price, and sales.
•A
 ny instances where the company says one thing
And while culture may seem to be a less quantifiable
but does another when it comes to DEIB or other
topic, its impact on the value creation process can be
priorities – often a sign that a much deeper issue
measured through data points such as productivity,
is at stake
attrition, and retention rates, which illustrate the
impacts of employee churn. Every employee lost
means not only the loss of institutional knowledge,
but also the potential for lost revenue, as holes in the
workforce stop or slow client work, plus the cost of
recruiting and onboarding a replacement.

Culture
It’s important to start observing a target company’s
culture and leadership team right away, and then
more thoroughly during the diligence process.
While the idea of pursuing two identical cultures
is impractical – and likely not even ideal – PE firms

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 21

CHAPTER 10: CULTURE AND DEIB (CONTINUED)

The goal of all this should be to determine: they start to have more diversity in background,
experience, and other measures.
•H
 ow do the target companies’ cultural beliefs,
values, and practices differ from ours? It’s also important to be wary of tokenism. It’s easy to
say, “Let’s find a woman to join us in this discussion,”
•W
 hat would be involved in changing or adapting or a person of color, or an employee with a disability.
to them? But people, organizations, and communities don’t
want to be made to feel like they’re in the room for
•A
 re there any problematic leaders – or the wrong reasons, or being touted as different or
problematic customers – to let go, replace, unique. That doesn’t create belonging, inclusion, or
or retrain? culture; that’s box-checking, and can lead back to
•W
 hat would be the timeline for such changes? attrition, if those employees feel marginalized, alone,
or even afraid.
The scale and impacts of differences will vary. If
Instead, start by fully rethinking how the company
Company A prides itself on a hybrid or work-from-
brings in new talent. Where does the company
home model and Company B requires on-site
recruit? What do the recruiting team and interview
work, that presents a relatively simple integration
panel look like?
challenge; but a history of enabling abusive
leadership or questionable business dealings may Then, think about how employees are supported.
be a reason to kill the deal altogether. Treating everyone the same is equality; considering
and meeting individual employees’ unique needs
DEIB is equity. Instead of making policy decisions
When companies talk about DEIB – if they talk about around the majority, make them around the most
it at all – it’s easy to focus on the D, Diversity. It’s underrepresented person. Don’t think about what
true that a company should not be demographically the average employee needs; think about what a
homogenous, and that it should reflect the single parent of color with a disability needs. This
community it serves. Anything less is likely a red flag is important in everything from leave and remote-
to consider in diligence. But representation alone work policies to those social norms so critical to
isn’t enough. There must be conversations and action advancement; happy hours are less accessible
around justice, equity, and inclusion, both internally to a parent working from home, or an entry-
and on a broader societal level. level employee who has to plan around public
transportation schedules. All of this adds complexity
Some have tried to draw a one-to-one correlation
to every conversation but is critical to ultimately
between diverse leadership and success, but it’s not
building equity and inclusion.
necessarily the case that organizations with diverse
leadership are inherently successful because of that In conclusion
diversity. Rather, it’s that successful organizations are
There’s an entire cottage industry around solutions
ones that have created environments that help all
to “fix” DEIB and culture, but in reality, this progress
employees be successful, where everyone is aligned
must be created from within. While training can
on the company’s purpose and mission and what
be helpful, this isn’t a “to-do” on the way to value
they’re doing for their customers, and all employees
creation. It’s a multifaceted, long-term leadership
can thrive and rise into leadership. Companies that
activity – and one where everybody within the
focus on attracting, supporting, and retaining the
organization has to do the work. 
best people possible should find that along the way,
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PRIVATE EQUITY’S SPRINT TO VALUE CREATION 22

CHAPTER 11: CUSTOMER PREFERENCES

DEFINE WHO THEY ARE AND HOW BEST TO SERVE THEM

The speed at which customers change their buying After this wider market analysis, conduct a detailed
patterns has never been faster, due to the rise of examination of the company’s current customers,
e-commerce, remote work, financial pressures, and the stickiness of those relationships, and the
countless other factors. And so it has become more elasticity of customer demand in the face of evolving
important than ever for portfolio companies and macroeconomic environments. A significant
their private equity buyers to fully understand the revenue concentration in a few customers can
company’s clients and their preferences, and to shape indicate undesirable risk, as top-line value creation
the organization around their behavior. Defining the strategies (or even the deal itself) may stumble if
customer and how they buy, engage, and interact new ownership cannot gain access to a particular
with a portfolio company is an essential starting point customer or secure an agreement with a key buyer.
for every investor. Deals can also underperform if the investor cannot
identify ways to offer new or better value to that
Step 1: Who are the customers? customer set and the sustainability of the core
In the absence of good customers, there is no value customer is lost.
proposition for a firm. Private equity investors
While data and records will be key, insights and
seeking to build resilient, growth-oriented
perspectives from company executives are also
portfolio companies must have a clear and deep
critical at this step – to learn about both the
understanding of the customer and their dynamics
customer and the company itself. Depending on the
to evaluate the attractiveness of an industry and
organizational structure, responsibility for customer
segment. Diligence of a company’s consumers
preference and engagement typically rests with a
should generally begin with a broad market scan
chief marketing officer, chief revenue officer, or VP of
to evaluate the sales dynamics of key players in the
sales. But in certain instances, the CEO may be heavily
industry or industry subset. This is typically followed
involved in the customer acquisition and retention
by more extensive research that may involve deeper
process, which can serve as a strong indicator that
commercial diligence, evaluating the composition of
the business maintains a customer-driven focus.
existing or potential customers in a given or target
addressable marketplace. Step 2: Which customers are the
For deal teams and operating teams, this means first most valuable?
establishing an understanding of the factors and Once they understand who the target company’s
drivers influencing overall market growth, decoupling customers are, which channels they use, and the
and understanding each layer of demand. To further dynamics and levers of sustainability, private equity
establish and evaluate preferences, firms must deeply firms must then focus on the customers that are most
contextualize the target’s value chain to understand valuable in order to align value creation principles.
where preference drivers emerge: at the end-user To identify these key customers, firms can employ
customer level, or upstream. Finally, evaluating the an understanding of traditional measures, such as
channels and mechanisms that are used by various understanding a customer’s willingness to pay
customer segments is critical to understanding the (and how to increase it), or focusing in on how to
right ways firms can connect value propositions to improve the costs to serve profitable customers.
target groups. This prioritization can unlock tremendous value-

In the absence of good customers, there is

no value proposition for a firm.

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 23

CHAPTER 11: CUSTOMER PREFERENCES (CONTINUED)

creating potential. or B2C customers or if the customer is the end user

of a product. For example, a distributor or OEM
There are a variety of tactics that firms can employ in manufacturer that sells through wholesale networks
assessing and prioritizing customers, such as: will have a very different approach to measuring
• F ocused analytic boot camps with portfolio customer engagement than a consumer product
companies to mine customer insights manufacturer. At the same time, this may also
provide a strong indication of where firms can seek to
•R
 igorous segmentation exercises to increase the enhance product and customer offerings – expanding
likelihood of matching customers with products from durables into consumables and developing
(and prices) that yield the most valuable results more consistent, recurring revenue streams.
for the firm
All this will depend on instituting tactical programs
Firms may also take a keenly strategic lens to to provide better and more meaningful product and
evaluating customers’ value, such as identifying those sales data. The ultimate goal should be to develop
that influence churn or attrition or those that may and deploy a “real-time” system for measuring
serve as key channel partners and provide market customer behavior, buying patterns, market trends,
signals that are not otherwise available. etc., to help ensure that the company is meeting
customers’ needs while avoiding excessive inventory
Step 3: How can they best be served? holding costs and write-downs.
Improving customer engagement to increase
If the target company does not yet have sophisticated
stickiness and sales demands a deep understanding
analytic capabilities, start with more firsthand
of the sales funnel and the customer journey. Look for
approaches like customer interviews, surveys, or
friction points and work to smooth them, with a focus
focus groups. Talk to sales teams and others who
on optimizing technology, inventory management,
work with customers directly to identify trends in
logistics, procurement, personalization, or a host of
requests and pain points.
other tactics to make sure that sales are swift and
seamless. Develop strong customer connections by
bolstering feedback and loyalty programs. Rather
than focus on a single lever to expand customer The ability to show strong, sustained (and
interaction, leading customer-centric organizations sustainable) growth, customer retention, and low
pursue multiple angles. customer churn is a key component in showing
the overall sustainability of a company’s revenue –
It will be important to note that the buyer process which makes it extremely important and attractive
and how to improve it will vary significantly from to potential buyers. It’s never too early to start
company to company, depending on factors such evaluating a company’s customer base and looking
as whether the company focuses on serving B2B for
Backopportunities to create| value.
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PRIVATE EQUITY’S SPRINT TO VALUE CREATION 24

CHAPTER 12: PRICING STRATEGIES

MOVE BEYOND ONE-SIZE-FITS-ALL: MATCH PRICES TO TRUE VALUE

Optimizing pricing and margins is the most obvious In many instances, PE investors will engage outside
lever for private equity value creation – but also the consultants to develop pricing strategies that extend
most complicated. While performance improvements across their entire portfolio. However, it is important
to pricing can have an immediate impact on a to recognize that one-size-fits-all pricing can be the
portfolio company’s bottom line, they are intimately downfall of a business in the long run. The pricing
linked to enhanced customer experience, sales, nuances of different products and services across
marketing, sourcing, procurement, and supply a company’s portfolio of offerings may mean that
chain management. some more commoditized products or services
would benefit from a competitive pricing model,
Pricing should be among the first things a prospective
while other high-value offerings may benefit from
investor assesses during the diligence process, and
a value-based model.
one of the first items to be modeled. This process
has taken on even greater importance in the post- Understanding price sensitivities and customer
COVID-19 environment, as many businesses have buying habits is central to the pricing process.
been challenged to modify pricing in response to Before adjusting pricing, it’s important to first
supply chain issues and customer buying patterns. determine the elasticity of demand for the business’s
Thankfully, pricing information is relatively easy products or services; one of the most common
data to secure, and countless benchmarking studies mistakes a PE investor can make is overestimating
exist to illustrate pricing by industry and geography. a portfolio company’s value to its customer. While
Any PE firm that is not accessing these data sets is some customers will be able to absorb a price
ignoring a significant opportunity for value creation. increase, others will not, and the result of shedding
unprofitable customers, as the 80/20 rule suggests,
Typically, PE firms will support and encourage an
can sometimes reach a point of diminishing returns
emphasis on the pricing of the products and services
as profit goes up and volume decreases. (The
of their portfolio companies. Many PE firms with
discussion of increasing pricing in order to serve
strong operating partners will have a pricing strategy
more profitable clients is generally centered around
that they impress upon their portfolio companies and
B2B companies. For a B2C portfolio company, pricing
monitor closely. Others that do not have similarly
can many times focus on increasing sales volume,
structured operations executives may depend on the
and any trimming of customers will be unacceptable.)
portfolio company management team to
drive improvements. On the other hand, many middle-market or family-
owned businesses may be underestimating their
Pricing strategies typically take on a few
own pricing power and have not increased prices in
different forms:
decades. A company that is undervaluing itself offers a
•C
 ost plus pricing, which simply adds a margin to remarkable investment opportunity in the short run.
the cost of manufacturing a product
A last note: As is often the case in value creation,
•V
 alue-based pricing, which attempts to quantify even after pricing analysis is complete and prices
the value that a client or customer derives from a have been optimized, the process cannot stop. The
product or service dynamics of the market and ever-changing customer
preferences demand that pricing be an iterative
•C
 ompetitive pricing, which attempts to match or process built into the permanent culture of
beat the price of a competitor an organization. 
Each of these strategies is linked directly to how well
a portfolio company knows its own customer and the
buying process. Back to Table of Contents | Contact Us
PRIVATE EQUITY’S SPRINT TO VALUE CREATION 25
CHAPTER 13: SALES FUNCTION OPTIMIZATION

GET A HANDLE ON CLIENT CONCENTRATION FOR GREATEST IMPACT

Improving the performance of a portfolio company’s A sales function that is both adding
sales function can be one of the fastest routes to
customer interactions and securing
value creation. With a proper assessment of the
systems, routes to market, sales channels, and teams significant revenue from each interaction
and individuals responsible for generating revenue, is coming closer to operating at
plus an accurate map of customer composition, peak efficiency and supporting
private equity investors can rapidly enhance a sales sustainable growth.
function to build sustainable value.
customers is likely to be less than optimal and will
Right-sizing teams and engagement
probably erode margins. Shifting some salespeople
Understanding a business’s customer base and to leverage inside sales and increase the focus on
client concentration will reveal the initial intelligence higher-revenue customers and cross-selling may
necessary to enhance sales. During the diligence represent one solution. By moderating the sales
process, private equity investors should first strategy to better balance customer concentration,
determine if the business has a “Top Heavy” or investors can better position the company for market
“Long Tail” client dispersion structure. Top Heavy changes and shifts in customer demand.
businesses will draw the majority of their sales from
a handful of clients, while businesses with a Long Tail Assessing and managing the allocation of existing
structure will draw small amounts of revenue from sales and marketing resources is a critical step.
many clients. Both structures can be used to dictate Certain businesses might benefit from changes
how best to organize resources across sales and to compositions of the field sales teams and
marketing. centralized call centers. The product mix, customer
concentrations, buyer journey, and margin profile will
For instance, a high-volume business conducting inform the decision to right-size specific components
many small transactions where no individual of the sales function, including team orientation,
customer is generating more than 5% of the revenue industry alignment, or geographic coverage. The
might make certain adjustments to jettison some correct mix of sales and marketing resources is
low-revenue customers in an effort to add a few essential to expanding the business’s revenue stream
high-revenue customers to the mix. This can be and improving the profit contribution.
accomplished by cross-selling more products or
solutions to each client, or may require new markets Improving sales can best be achieved by increasing
to be developed. overall customer engagement without losing focus on
growing revenue from each sale. A sales function that
And it would be inefficient for a business with a Long is both adding customer interactions and securing
Tail customer concentration to have a large field sales significant revenue from each interaction is coming
force traveling to make sales calls. The expense of closer to operating at peak efficiency and supporting
managing a large team to serve many low-revenue sustainable growth.

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 26

CHAPTER 13: SALES FUNCTION OPTIMIZATION (CONTINUED)

Sales and marketing: Separate, but not siloed accelerate growth.

When considering changes to create a high-
Clear, consistent compensation
performance sales function, it is important to
look beyond the people themselves to address Finally, enhancing the performance of a sales
the surrounding resources that contribute to their function will frequently involve a discussion of
effectiveness. Because growing customer interactions compensation. This is typically one of the top
is a priority of the marketing team, PE investors items on a PE firm’s to-do list following the close
should work to ensure close collaboration between of a transaction. Ensuring that the compensation
sales and marketing to grow revenue. structure is both clearly articulated and easily
understood by both management and the broader
That said, while they are highly collaborative, it is sales team is an important step when attempting to
critically important for a fast-growing business to align individual performance with broader corporate
maintain a clear distinction between teams dedicated goals. Compensation plans tend to work best when
to each specialty. It is not uncommon for a middle- they are consistent and have no more than two or
market business to minimize the importance of three elements that determine compensation. PE
properly defining the sales and marketing functions. investors should work with senior management
Measuring how well senior leaders across sales and to determine whether compensation plans are
marketing are engaging with each other to create a achieving the of
Back to Table desired outcome.
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co-dependent ecosystem can reveal a host of value
creation opportunities.

Understanding the effectiveness of a marketing

program – from brand awareness and market
position to customer engagement and competitive
intelligence – should be among the first tasks of any
private equity investor focused on growth through
enhanced sales. This can be determined by how
accurately the marketing resources are allocated
to support the existing sales effort. By contrast,
a marketing effort that is poorly linked to sales
may be indicative of siloed functions not working
collaboratively. Having effective data insights
and dashboards on their combined functions is
imperative to making sound business decisions to

By moderating the sales strategy to

better balance customer concentration,
investors can better position the company
for market changes and shifts in
customer demand.

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 27

CHAPTER 14: ENVIRONMENTAL, SOCIAL, AND GOVERNANCE

ALIGN STAKEHOLDER PRIORITIES TO CREATE VALUE AND DO GOOD

Private equity firms are in a unique position to How to advance ESG
influence both financial and social value creation Start early
through fund operations, investment decisions,
and portfolio management. Thus, as attention to Incorporating ESG diligence as part of a broader
environmental, social, and governance (ESG) factors diligence assignment helps to reveal ESG-related risks
continues to rise, stakeholders have also come to and opportunities. PE firms should establish an ESG
expect PE firms to look at their investment and value- workstream during the diligence process to create
creation decision-making through a more focused an ESG issues profile based on the target company’s
ESG lens. Now more than ever, it’s important for firms business model, industry, employee retention rates,
to know, meet, and exceed the ESG expectations geographic footprint, and a host of other measurable
of limited partners, vendors, customers, business criteria. The investment team should then evaluate
partners, employees, and regulators. A well-defined the existing design of the underlying ESG compliance
and well-executed ESG strategy has the potential to programs to determine performance optimization
drive value throughout the investment lifecycle. opportunities that might ultimately contribute to
enhanced EBITDA. With more potential buyers and
While the underpinnings of ESG have been around investors taking decisive steps to establish ESG
for decades (previously referred to as “corporate requirements for the companies they do business
social responsibility”), as a value creation initiative with, a comprehensive ESG program with a solid
for private equity firms, ESG is still very much in its policy and reporting framework, and potentially even
infancy. Historically, the practice of measuring and completed audits, should be table stakes in today’s
improving an organization’s broader community PE deals.
impact has been a lower priority because of the
Focus on metrics, and knowing whose and what
perceived intangible impact on EBITDA.
standards to meet
But because ESG transcends an entire organization, Taking a strategic approach to ESG metric-setting at
developing, implementing, and monitoring ESG as a the portfolio level can be a value-creation tool for
value creation strategy across an investment portfolio private equity firms, even if those metrics are not
can take many forms and have profound impacts. initially demonstrating the desired impact. Merely
From improving logistics and saving on materials, to having the ability to measure ESG can set a portfolio
building stronger relationships with customers and company apart and make an organization more
employees, to developing initiatives that advance attractive to a potential buyer. The specific metrics
human rights, the opportunities to create value using to track will vary based on the company’s industry,
ESG are broad and deep. geography, and goals, plus the given regulatory
climate. However, it is likely that some market
Because ESG transcends an entire priorities will hold steady regardless of politics:
organization, developing, implementing, clean, efficient, effective, and ethical operations, plus
reduction of resource consumption.
and monitoring ESG as a value creation
strategy across an investment portfolio When considering ESG strategies and initiatives,
can take many forms and have complying with state and local trends and regulations
is a good place to start, but it’s important to keep
profound impacts.
an eye on evolving global standards as well. Private
equity firms should be prepared for opportunities

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 28

CHAPTER 14: ESG (CONTINUED)

with global investors or buyers. For its own part, the Merely having the ability to measure ESG
PE firm should already be working toward the UN’s can set a portfolio company apart and
Principles for Responsible Investment; for portfolio
companies, consider frameworks such as the UN’s
make an organization more attractive to
17 Sustainable Development Goals or the Financial a potential buyer.
Stability Board’s Task Force on Climate-related
Financial Disclosures (TCFD). Think creatively
Complying with ESG regulations keeps a company
Consider the needs of potential large customers, out of trouble with regulatory authorities, but also
and customers’ own customer bases. As a variety just keeps it on the same level as everyone else. Real
of regulations are being developed by various value comes with looking further into what can set
jurisdictions – and as a host of standards are being the business apart as a real ESG champion. Think
developed by industry working groups – customers outside the box when evaluating ESG credentials and
may also have their own standards to follow around opportunities; there’s more to it than just conserving
the emissions or diversity of the companies they resources. For example, a company that repurposes
work with or buy from, or may have established their old technology or reuses old parts isn’t just being
own ESG initiatives on the environmental impact of cost-efficient or resourceful – it’s being sustainable,
transportation or compliance with humane labor laws. by diverting materials from landfills and reducing
Look for opportunities to save both costs demand for new ones.
and resources
Help secure revenue-boosting deals by knowing what
Financially motivated improvements can also carry public ESG commitments potential customers have
ESG benefits, and vice versa. For example, optimizing made, and how portfolio companies can help meet
logistics so that no truck returns empty will boost them. For example, a portfolio company operating
the efficiency of transportation and save on fuel and entirely in the U.S. may be able to negotiate better
labor costs – plus, it will help the company get the deals because they can help larger companies meet
most out of every carbon emission and not emit more “Buy American” requirements. (Smart pricing and
than is necessary. good products will still be required, of course, as a
baseline, but standout ESG factors can help provide
A good place to start this process is breaking down
that extra bump above the competition.)
exactly what goes into each sales unit produced,
each customer sale, etc. Once that’s defined, it will Rethink the ‘intangible’
be clearer how to minimize those inputs – and thus Beyond improving revenue and cash flow, committing
improve margins and conserve energy and materials. to ESG can present an opportunity to build stronger
relationships with broader investment groups and
employee bases, as well as customer and employee
loyalty – all of which seem like “intangible” impacts,
but can be tied to real metrics. For example, matching
employees’ hours of community service with hours of
time off can result in a service-minded workforce that
contributes significantly to the communities where
they live, which will help foster a sense of fulfillment
in employees and goodwill for the company as a
whole. This may translate to quantifiable results such
as lower employee turnover and recruitment costs,
higher local sales, and an overall enhanced market
value of the portfolio.

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 29

CHAPTER 14: ESG (CONTINUED)

Watch carefully for ‘greenwashing’ at least face lower valuation or compensation. And
As market demand for ESG increases, companies may when it comes time for the PE firm to raise its next
look to capture a share with marketing claims around fund, if the firm hopes to raise capital from limited
sustainability, diversity, and more that are misleading partners with ESG mandates, they’ll need to align
or that they don’t live up to. This can take many their own ESG policies, procedures, and strategies to
forms, from vague, toothless goals around “reducing do so.
carbon emissions” to misdirection like touting female The issues that comprise a firm’s ESG risk and
leadership while sourcing materials from mines that opportunities profile wind through all functional and
demonstrate unsafe or illegal working conditions. operational aspects of a business – cost optimization,
Consider all claims carefully, and look for data and top-line capital, human capital, and so on. Thus,
confirmed case studies to back them up. on the whole, ESG can present a wide range of
opportunities, drawing attention to items and ideas
Mind the risks – and embrace the opportunities that hadn’t previously been considered.
While it would be a mistake to think of ESG as just
another compliance burden, it is still important to A strong strategic foundation can help leaders execute
note that there are risk factors to not prioritizing ESG initiatives that maximize ROI and preserve a
ESG. In addition to the financial and reputational firm’s reputation in the eyes of stakeholders. With the
risks tied to standards and regulations, inattention window wide open for small and middle-market PE
to ESG can also put deals at risk, from customer firms to embrace ESG, the time is right to consider
contracts to the eventual exit. Especially when large conducting a comprehensive review of ESG strategies
public corporations are involved, there is a high and to build value and conserve resources – and to
likelihood that the customer or buyer will have ESG help make the world a little better along the way. 
requirements – and if the company is not prepared
to meet these requirements, it may lose the deal, or Back to Table of Contents | Contact Us

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 30

CONCLUSION Especially amid the shortened timeline of a private equity investment, it’s
important to leverage the time value of money by enacting your value creation
plan as early in the investment lifecycle as possible. The “sprints” we’ve
detailed here can help set you up for a series of early wins and ultimately the
timely achievement of your investment objective.

Ready to get started? Reach out to our team to start building out – and
executing – your value creation roadmap. Whether you’re at the onset of
an investment, dealing with barriers that are inhibiting your portfolio’s
performance, or fully ready to activate the components of an existing value
creation plan, we’re standing by with industry- and situation-specific expertise
to help you find your best path toward the finish line.

When it comes to value creation, the needs of each portfolio company are
unique – but as long as you know how to take them into account, there’s
also room to apply time-tested, proven solutions that lead to repeatable and
scalable results. We look forward to taking that journey with you.

Contact our team to get started.

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 31

TALK TO OUR With comprehensive industry intelligence and situation-tested operational

VALUE CREATION
know-how, our Value Creation team helps both healthy and unhealthy
companies overcome challenges and seize growth opportunities. Our

TEAM
professionals understand the unique relationship between private equity
investors and portfolio company executives, and bring a wide range of
deal, operations, and fund knowledge to each engagement. Whether you’re
looking to boost top-line results, reduce costs, or optimize efficiencies,
we’re standing by to help you achieve your goals, create value, and eventually
exit profitably.

CONTRIBUTORS
Kim Clark Pakstys, Managing Director, CFO Accounting & Advisory,
Global Consulting Solutions
[email protected] | 703.744.7445
Claudine Cohen, Managing Principal, Value360, Transactional
Advisory Services
[email protected] | 646.625.5717
Reed Dailey, Client Relationship Executive, Digital Consulting,
Global Consulting Solutions
[email protected] | 312.869.0970
Eric Danner, CPA, CIRA, CTP, Partner, Restructuring and
Dispute Resolution
[email protected] | 646.601.7884
Marisa Garcia, CPA, Partner, CFO Accounting & Advisory, Global
Consulting Solutions
[email protected] | 646.601.7786
Risa Lavine, Principal, Chief of Staff
[email protected] | 301.961.5530
Jeremy Swan, Managing Principal, Financial Sponsors
& Financial Services
[email protected] | 646.625.5716
Special Contributor:
Chris Chandler, Founder & Managing Partner, The Creovia Group

PRIVATE EQUITY’S SPRINT TO VALUE CREATION 32

ABOUT COHNREZNICK
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PRIVATE EQUITY’S SPRINT TO VALUE CREATION