Lessons Learned from the Private Equity Insights Conference in Switzerland

The value creation dialogue points to new opportunities for PE firms and their portcos. 

It’s always exhilarating to come together with a diverse group of private equity industry professionals and be part of debating the hottest issues in the industry. Especially at such a dynamic time where available funds and dry powder continue to grow, but macro forces present formidable headwinds, hearing different perspectives and approaches and sharing learnings between peers is always rewarding.

My experience at PE Insights Switzerland in late June didn’t disappoint. I actively listened to several in-depth conversations about value creation that shed light on current trends, as well as some potentially overlooked opportunities and whitespace in the industry. Here are my top takeaways from what was discussed—and what wasn’t—by the leading experts of PE in the Zurich regions.

  1. Resilient business models will be rewarded. Not all sectors are created equal when it comes to attracting PE investment, especially in today’s economic climate. Right now, the PE industry is increasingly turning its attention to healthcare companies and industries with a technology component given the high demand for products and services in these categories. At the same time, the pandemic and its aftermath have kept the spotlight on the importance of resiliency and the ability to quicky transition operating models in response to unforeseen circumstances. Regardless of industry, those companies that can demonstrate their agility and resourcefulness will be the most attractive targets.

  2. Leaders resistant to change won’t last long at most portcos Much of the conversation around the people component of an acquisition focused on the need to let go of incumbents in newly acquired portfolio companies, particularly leaders at the very top of the organisation. In situations where, for example, a founder is set in his or her own ways and consistently acting as a roadblock to the improvement initiatives that will drive value creation, this may very well be necessary. PE firms need to have a plan for how to approach this issue.

    However, TBM’s experience has shown that firms also need to consider what it looks like when the leadership stays in place, and not automatically assume everyone at the top will need to go. PE investments represent a new chapter in a company’s storey, and many times current leaders are eager to help write it when given the chance by passing their years of knowledge and experience to the next generation.

    It’s important to be ready to capitalise on the excitement and spirit of the honeymoon phase of the relationship between PE firm and portco and use this time to lay the groundwork for the cultural change that will need to occur. Current leaders who can demonstrate commitment to the new way of doing things can be instrumental in modelling the behavioural change that will secure buy-in from the rest of the team and lead to the breakthrough performance every PE firm wants to see.

  3. Nobody’s talking about what to do on day 101 and beyond. It’s clear that PE firms are well prepared to plant the seeds of value creation as soon as the ink is dry on a new deal. Many have standard playbooks for identifying the key levers to immediately pull in areas such as operations, HR, finance, and supply chain. And they are ready to translate needed changes into 100-day plans for their newly acquired portcos to follow.

    But what happens after that initial phase? One key session at the conference covered the idaea that value creation is only realised at exit. Technically, this is true. But the approach leaves several years between the first 100 days and the sale where value creation opportunities surely exist and will be overlooked without careful attention. Much as a farmer who sows seeds in the spring must remain attentive during the entire growing season if he expects a good harvest in the fall, PE firms that give attention to their portcos throughout the holding period will reap better EBITDA improvements in the end and even during the holding period.

    While few standards or industry best practises for mid-and late-stage value creation were hashed out at the conference, TBM has supported multiple portcos during these key phases of the holding period, implementing continuous improvement and operational excellence initiatives that accelerate value creation. In one recent example, we worked with a HVAC manufacturing portfolio company that already had its initial optimisation plans in the works. Our team identified an additional 500 basis points or $14 million in layout and process optimisation improvements to further enhance company performance and value.

  4. External resources are especially important to mid- and late-stage value creation. One reason why conversations about value creation in later stages of the holding period didn’t take centre stage is that smaller and mid-sized PE firms and portfolio companies simply don’t have the internal resources to drive these efforts. That makes the right partners—those that take a hands-on approach and work at the point of impact to quickly implement solutions and deliver rapid results—especially important. Partners can help by providing detailed value creation roadmaps and go-forward plans customised to each phase of the holding period, and they can address and fill in the people, process, and technology gaps that often exist at smaller companies, helping to expedite value creation at any stage.

Keep talking—and doing—in 2023.

In the PE world, time really is money. While ongoing dialogue about best practices is important, it’s just as critical to act on the insights and take advantage of every available opportunity for value creation and capturing EBITDA benefits, no matter where you are in the holding period.