The challenge

Private equity has grown dramatically over the past decade. Investor allocations, the outperformance of private equity versus public companies, and market appreciation have grown global assets to a new high of $3.6 trillion, excluding venture capital. As industry growth slows, private equity firms will continue to shift more time and resources from front office deal-making to growing profitability through restructuring and operational efficiencies. Key questions managers need to answer in this process include “How do I integrate the acquired companies into the portfolio?” How do I optimize the operational spend? Where can I improve our processes? And how do we create the maximum value in our portfolio?” While private equity firms have historically focused on growing the value of the fund through securing favorable deal terms during the acquisition of portfolio companies, these terms have lessened in attractiveness due to lower available levels of financial leverage. As a result, PE managers have turned their attention toward post-deal value creation. Though the goal is still to focus on finding portfolio companies with good products, services, and distribution during the deal-making process, optimizing the performance of the acquired business is the first rule in the playbook after the deal is done.