How private equity can drive value across the deal lifecycle

25 March 2020 5 min. read

In the current highly competitive and turbulent private equity market, the winners will be the firms that maximise the value of their portfolio companies and deliver value creation at a portfolio level. Jaimie Loder, a Vice President Private Equity at consulting firm Maine Pointe in Europe, outlines how private equity firms can drive measurable and sustainable value across the deal lifecycle.

Having worked with over 50 private equity firms in 30+ countries delivering billions in strategic and operational benefits, Maine Pointe have developed a proven methodology for unlocking and reaping deal acquisition and integration benefits. The approach builds on driving results throughout the entire five-step deal lifecycle.

Deal Lifecycle: Typically ~ 3-5 years

1. Deal origination

Identifying the ideal target candidates for your platform, understanding how targets fit into your buy and build strategy and how targets can fill operational and talent gaps are crucial to value creation. Whether you are working internally or with an external partner, it is important that teams understand your platform business and goals and can identify the value levers for bolt-ons in your niche. This allows you to accelerate your hunting phase and focus on the work to close the transaction successfully. 

2. Due diligence

Understanding the supply chain and operational improvement thesis is critical to enhancing confidence, competitiveness and time-to-value-creation. If you don’t quantify and capitalise on the EBITDA, cash savings and growth opportunities in the supply chain and operations that can be identified at the due diligence phase, you are missing a trick. 

Taking a thorough approach to this helps deal partners increase their bidding competitiveness, reduce acquisition risks, improve lender/investor dialog, accelerate time-to-close and optimise the realisation of value creation opportunities. Due diligence should not be a stand-alone activity. It is just one part of a continuous process as the company transfers to new ownership. 

Due diligence should also provide the foundation for the post-closing integration plan, establishing a road map for the timing and resources needed to deliver the investment thesis. Furthermore, the experts supporting the operational and supply chain diligence are best positioned to support pre-closing activity, which is especially relevant for carve-out transactions with potential gaps in staffing and crucial institutional knowledge. 

How due diligence should be integrated into the value creation process

3. Performance improvement

Post-acquisition it is important you work to align management and the organisation, to drive quick wins (<90 days) and sustain step-change improvements across procurement, logistics, and operations. If you don’t have the internal operating capacity, you may need an external partner to help you drive measurable results and infuse best practices to establish an optimised platform for bolt-on growth. 

4. Bolt-on acquisitions

Once you have established your operational platform, it is imperative to pursue, close and integrate acquisitions to enable growth. At this stage synergy savings, achieving quick wins (<90 days), then integrating, consolidating & standardising operations across the supply chain are the order of the day. The results are reduced working capital requirements and accelerated EBITDA, cash and growth. 

5. Before exit

Many private equity firms only embark on an operational improvement initiative once. However, performance ‘leakage’ does occur. To maximise deal returns, many leading private equity firms bring in a specialist supply chain and operations consulting partner 9-18 months before exit. At this phase there is an opportunity to accelerate benefit capture through quick-win engagements and further optimise the portfolio company’s supply chain and operations, thereby increasing the sale price.

At Maine Pointe, we help implement demonstrable LTM (last twelve months) results, support management and provide a clear road map for further improvement. One example of the effectiveness of this approach was a 60:1 ROI our engagement with a portfolio company delivered for the private equity owner at exit in less than one year.

For more insights on the topic download the white paper 'Private Equity Perspectives 2020'.