Key themes for value creation

By Stephan Keese, Barry Neal, Danny Mueller, Matt Page, Mathieu Rasamoela and Bernhard Weissensteiner

On October 22, 2024, Roland Berger participated in the PEI Operating Partners Forum in New York City. Industry leaders gathered to discuss the evolving landscape of value creation in private equity. As the PE markets increased recent activity and faced continued challenges of high interest rates, geopolitical turbulences, and increased competition, sponsors are expected to rely on strong management teams and carefully crafted value-creation plans to drive returns on their investments.

The event highlighted that the general playbook for value creation remains consistent, as the recipe for success will invariably rely on a mix of organic growth (both in volume and price), buy & build, and cost reduction. However, the conditions for a successful holding period must be tailored to specific situations. To develop the right strategy, sponsors and operating partners play a critical role in creating the right conditions for an impactful and well-executed value-creation plan. Here are the six expected key pillars that Roland Berger has identified:

1. Understanding the Business: In-depth business knowledge is imperative for underwriting effective value-creation plans during due diligence. Roland Berger’s proprietary Business Essence framework provides a unique lens into a firm’s core competencies and helps operating partner and management teams discern a business’ core competencies effectively.
2. Management Quality and Engagement: Successful value creation requires strong management teams. The most significant driver of successful results or downside surprises during the hold period is a clear perspective on existing management expertise, succession plans, and gaps. Most sponsors are most successful in acting as architects rather than project managers and fostering collaborative relationships with CEOs and executive teams.
3. Focus on Sustainable Growth & bottom line: Buyers have adopted a much more conservative view on growth, taking more steps to ensure projected growth is both sustainable and profitable. Similarly, the ability to underwrite top-line growth remains more challenging than bottom-line enhancements.
4. Navigating Complexity: Firms must carefully consider their options and think strategically about the full potential of their value creation plans. Simplifying focus on critical drivers is essential. Strategic coherence and ROI should be the guiding principles
5. Infrastructure: The right financial, data and technological infrastructure are critical enablers and a backbone for successful value creation.
6. Exit Readiness: The value creation plan should be assessed throughout the holding period. A plan refresh should happen no later than 12-18 months before the targeted exit to highlight opportunities for prospective buyers. Too many times, we see management teams entering an exit process without a clear view of what future owners could do with the business.

At Roland Berger, we are committed to helping our clients excel in their value-creation journeys and ensuring they are well-equipped to meet the demands of an ever-evolving market landscape.

For more insights and support, please reach out to our team .