A clearly defined playbook with value creation initiatives is critical for Private Equity firms
Revenue contribution to the Private Equity industry in Australia is forecast to decline 3.5% in 2020-21 due to Covid-19 disruptions, however, it is expected to grow 2.6% over the years through to 2025-26 to $725.3M.
Private Equity firms need to consider the following four actions to ensure they can add value to individual companies, outperform the market, and become an organisation that can confidently generate attractive returns:
Articulate a new, clear value proposition either through specialisation or economies of scale.
Achieve excellence in talent, governance, and organization.
Refine how to successfully originate and execute on deals.
Prepare for successful exits at least 18 months prior to a planned exit; allowing time for asset owners to shape a compelling equity story.
The pressure for Private Equity firms to achieve profitable returns is critical, even more so in today’s economic environment. In order to be certain they can achieve consistent returns in the fund they must focus on purchasing the investment at the right price and focusing on accelerating value creation initiatives to ensure that they can sell at a significant increase in multiple.
Private Equity firms must have a clearly defined playbook which contains value creation initiatives to support the investment thesis. This provides an advantage in knowing what to pay and the level of risk. The playbook should be refreshed and prioritised for each investment.
An asset’s full potential is realised through a holistic approach that optimising operational performance, enhancing strategic capabilities and effective capital management. The efficient use of capital is also a critical component of valuing an asset’s full potential. Capital deployment is an important foundation to support strategic and operational initiatives.
Strategic Levers
Drive Multiple
Transforms the Business Model
Mergers and acquisition
Geographic expansion
Customer segmentation
Strategic pricing
Product strategy and innovation
Aftermarket/service strategy
Distribution strategy
Digital transformation
Data strategy
Operational Levers
Drivers EBITDA Margin
Transforms Execution of the Business Model
Pricing optimisation
Sales force effectiveness
Product portfolio optimisation
Operational efficiencies through optimisation – manufacturing, distribution
Cost to serve
The business world is changing with the rapid evolution in technology, and in order for Private Equity firms to maximise the returns on their investment funds, a value creation focus in digital transformation is important.
The goal of digital transformation is disrupting existing business models, improving customer experience, and creating operational efficiency.
Strategic acquirers are more likely to pay higher multiples for successfully digitised companies, given that they are easier and faster to analyse and integrate.
Looking to create your own playbook? Let us help.
Whiteark is highly experienced in providing services to Private Equity firms and has had great success at driving an improvement in returns through involvement in portfolio transition and transformation projects. We understand that execution is the hardest part, and we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Contact us on whiteark@whiteark.com.au
