PWC : Creating Value Beyond The Deal
PWC’s Malcolm Lloyd and Will Jackson-Moore from their Private Equity support team have surveyed 100 Private Equity GP teams to collect data about their recent deals and highlight the characteristics of the top performers.
In their report they recognise the solid overall performance of PE GPs when creating value in portfolio companies but highlight that the traditional emphasis on close cost and working capital control falls short of all that can be achieved.
In their analysis they define how transformational revenue enhancement efforts are key to achieving that elusive alpha performance, but that less than half of PE GPs are giving meaningful emphasis to this performance lever.
Referring to the findings of a wider study, they reflect on how corporates place greater emphasis on revenue enhancement in their pre-deal strategy efforts. With those who do outperforming their industry benchmark by as much as 14%.
Their key findings also relate to the impact of cultural Issues and loss of talent on deal performance, with all of the underperforming deals attributed to that as a cause.
Where Investor GP teams had struggled to build bridges to the management and the wider organisation around the new direction, a vast majority lost between 20 & 30% of key talent in the portfolio business.
Perhaps unsurprisingly, robust exit planning and data-based steering are also cited as important factors, but it’s difficult to imagine that these points are not already key focus areas within all mainstream PE teams.
In their conclusions they describe a market where the number of deals that fail to create significant value is on the increase, with few of today’s deals achieving the >2x multiples of the past.
We couldn’t agree more about how a greater emphasis on value creation from the outset (pre-deal) and deeper GP involvement in the strategic repositioning of the portfolio company will have a clear positive impact on bringing home those higher exit multiples.
Involving the key management and staff in that effort “from the get go” is also the ideal way to side step any deal value destruction caused by a lack of cultural alignment on the way forward.
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